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UNITED STATES  SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549


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FORM 10-K


|(Mark One)                                                                                    
|----------------------------------------------------------------------------------------------
|                                                                                              
|ANNUAL    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    EXCHANGE  ACT OF 1934   
|                                                                                              
|For    the fiscal year ended December 31, 2002                                                
|                                                                                              
|or                                                                                            
|                                                                                              
|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF    THE SECURITIES    EXCHANGE ACT OF 1934
|                                                                                              
|For    the transition period from __________to __________                                     
|                                                                                              
|Commission file number 0-26482                                                                




|TRIKON
        TECHNOLOGIES, INC.                                      
|-----------------------------------------------------------------------
|(Exact
        name of registrant as specified in its charter)         
|                                                                       
|DELAWARE                                                               
|(State
        or other jurisdiction of incorporation or organization) 
|                                                                       
|Ringland
        Way, Newport, Gwent NP18 2TA, United Kingdom          
|(Address
        of principal executive offices) (Zip Code)            
|                                                                       
|44
        (0)1633 414 000                                             
|Registrants
        telephone number, including area code             
|                                                                       
|Securities
        registered pursuant to Section 12(b) of the Act:None
|                                                                       
|Securities
        registered pursuant to Section 12(g) of the Act:    
|Common
        Stock, $0.001 par value per share                       
|(Title
        of Class)                                               




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Indicate by check mark whether the registrant (1) has  filed all reports required to be filed by Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding 12 months (or for such shorter period  that the registrant was required to file such reports), and (2) has been  subject to such filing requirements for the past 90 days.   Yes     No





Indicate by check mark if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not  contained herein, and will not be contained, to the best of registrants  knowledge, in definitive proxy or information statements incorporated by  reference in Part III of this Form 10-K or any amendment to this Form 10-K.





Indicate by check mark whether the registrant is an  accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes     No





The aggregate
  market value of the registrants voting and non-voting common equity held
  by non-affiliates of the registrant on June 28, 2002 (the last business day
  of the registrants most recently completed second fiscal quarter), based
  on the closing price of the Common Stock as reported on the Nasdaq National
  Market on such date, was approximately $77,081,626.





As of March
  17, 2003, the registrant had outstanding 14,031,718 shares of Common Stock.





Documents Incorporated by Reference: Part III of this  Annual Report on Form 10-K incorporates information by reference from the  Registrants Proxy Statement for its 2003 Annual Meeting of Shareholders, which  Proxy Statement will be filed no later than 120 days after the end of the  Registrants fiscal year.





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TRIKON  TECHNOLOGIES, INC.





Annual  Report On Form 10-K For The Year Ended December 31, 2002





Index


|                                                     |          |                                                                                          | Page
|---------------------------------------------------- | -------- | ---------------------------------------------------------------------------------------- | ----
|                                                     |          |                                                                                          |     
|SPECIAL NOTE    REGARDING FORWARD-LOOKING STATEMENTS | 2       
|                                                     |          |                                                                                          |     
|PART I                                               | 3       
|                                                     | ITEM 1.  | BUSINESS                                                                                 | 3   
|                                                     | ITEM 2.  | PROPERTIES                                                                               | 9   
|                                                     | ITEM 3.  | LEGAL PROCEEDINGS                                                                        | 10  
|                                                     | ITEM 4.  | SUBMISSION OF MATTERS TO A VOTE OF    SECURITY HOLDERS                                   | 10  
|                                                     |          |                                                                                          |     
|PART II                                              | 11      
|                                                     | ITEM 5.  | MARKET FOR REGISTRANTS COMMON EQUITY    AND RELATED SHAREHOLDER MATTERS                 | 11  
|                                                     | ITEM 6.  | SELECTED CONSOLIDATED FINANCIAL DATA                                                     | 11  
|                                                     | ITEM 7.  | MANAGEMENTS DISCUSSION AND ANALYSIS    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 13  
|                                                     | ITEM 7A. | QUANTITATIVE AND QUALITATIVE    DISCLOSURE ABOUT MARKET RISK                             | 24  
|                                                     | ITEM 8.  | FINANCIAL STATEMENTS AND    SUPPLEMENTARY DATA                                           | 24  
|                                                     | ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH    ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  | 25  
|                                                     |          |                                                                                          |     
|PART III                                             | 26      
|                                                     | ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS                                                         | 26  
|                                                     | ITEM 11. | EXECUTIVE COMPENSATION                                                                   | 26  
|                                                     | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN    BENEFICIAL OWNERS AND MANAGEMENT                        | 26  
|                                                     | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED    TRANSACTIONS                                        | 26  
|                                                     | ITEM 14. | CONTROLS AND PROCEDURES                                                                  | 26  
|                                                     |          |                                                                                          |     
|PART IV                                              | 27      
|                                                     | ITEM 15. | EXHIBITS, FINANCIAL STATEMENT    SCHEDULES AND REPORTS ON FORM 8-K                       | 27  
|                                                     |          |                                                                                          |     




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SPECIAL  NOTE REGARDING FORWARD-LOOKING STATEMENTS





This Annual Report on Form 10-K and certain  information incorporated herein by reference contain forward-looking statements  within the meaning of Section 27A of the Securities Act of 1933 and Section 21E  of the Securities Exchange Act of 1934. All statements included or incorporated  by reference in this Annual Report on Form 10-K, other than statements that are  purely historical, are forward looking statements. Words such as expects,  anticipates, intends, plans, believes, seeks, estimates and other  similar expressions or variations of such words are intended to identify these  forward-looking statements.





These forward-looking statements, which include  statements about our development efforts in the field of low k dielectrics,  acceptance of our technological innovations and products, the length and  severity of the protracted and continuing downturn in the semiconductor  industry, our capital requirements and funding sources, our ability to cut  costs and manage our business during the protracted and continuing downturn,  our market size, share and demand, and our expectations and objectives  regarding future expected operating results, revenues and earnings are not  guarantees of future performance and are subject to risks and uncertainties  that could cause actual results to differ materially from the results  contemplated by the forward-looking statements.





All forward-looking statements included or  incorporated by reference in this Annual Report on Form 10-K are based on  information available to us as of the date hereof, and we assume no obligation  to update any such forward-looking statements. Stockholders are cautioned not  to place undue reliance on such statements.





The forward-looking statements and any expectations  based on such forward-looking statements are subject to risks and uncertainties  and other important factors, including, without limitation, the cyclical nature  of the semiconductor industry and the continuing and protracted downturn in the  semiconductor industry, the long sales cycle and implementation periods, the  acceptance of our technologies and products, our ability to respond to  technological change, our dependence on a limited number of customers and other  factors discussed under the heading Risk Factors and elsewhere in this Annual  Report on Form 10-K. The reader should also consult the cautionary statements  and risk factors listed from time to time in the reports we file with the  Securities and Exchange Commission.





TRADEMARKS





TRIKON, ORION, OMEGA, OMEGA ETCH, OMEGA 2, SOFT  SPUTTER ETCH, PLANAR 200, FORCEFILL, FLOWFILL, HI-FILL, SIGMA, ELECTROTECH,  PLASMAFAB, SCIF, DRY DIP, FxP, and THE PLASMA COMPANY are our trademarks and  are registered in one or more of the territories in which we sell our products.  M0RI, LOW-K FLOWFILL, C3M and PLANAR are our trademarks, and we have applied  for trademark registration of these and other marks in the major sales  territories in which we operates.





All other trademarks, service marks, or trade names  referred to in this Annual Report on Form 10-K are the property of their  respective owners.





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PART I





ITEM  1.    Business





OVERVIEW





We design,
  manufacture, market and service a broad line of advanced production equipment
  used to manufacture silicon and compound semiconductor devices, commonly called
  integrated circuits, and planar optoelectronic devices. Integrated circuits
  consist of thin film layers of insulating material and conducting materials. These circuits
  and devices are key components in most advanced electronic
  products, such as telecommunications devices, consumer and industrial electronics
  and computers.





Our products
  carry out processes to add and remove materials to the surface of a circuit
  or other device. In particular, our products are used for chemical vapor deposition
  (CVD), physical vapor deposition (PVD) and etch processes.
  CVD processes add insulating material, PVD processes add conducting materials,
  and etch processes are used to remove unwanted materials. These processes are
  used, for example, in the manufacture of the layers of wiring, known as the
  interconnect, of an integrated circuit.





Our strategy is to expand our
position as a leading  provider of process solutions to the silicon semiconductor, compound
semiconductor and emerging optical and micro systems markets, and includes the  following key
elements:





Marketing  solutions over a broad range of applications in the silicon and compound  semiconductor end markets.We offer innovative products  incorporating new technologies including our leading CVD technologies for  depositing low k materials (k is the dielectric constant and is a measure of  the insulating capabilities of a material). The use of low k materials in the  manufacture of integrated circuits results in increased speed of electrical  signals through an integrated circuit and is crucial to the development of  faster and smaller integrated circuits. We believe that our ability to identify  and provide leading edge solutions to key growth markets will be critical to  ensuring our long-term success.





Maintaining
  technological strength. We devote significant resources to research and
  development programs, including programs addressing low k and ultra low k dielectrics,
  new PVD applications and advanced oxide/low k etch applications for silicon
  integrated circuits and, despite the protracted and continuing downturn in the
  semiconductor industry, we continue to spend heavily on research and development.
  We are committed to improving existing systems and technologies and to developing
  new technologies and systems that compete effectively on the basis of total
  cost of ownership and performance.





Leveraging  existing strong customer relationships with silicon and compound semiconductor  manufacturers located throughout North America, Europe and the Asia/Pacific  region.We work closely with each customer to identify and  address specific product requirements. We believe that timeliness of delivery  along with the ability to service and support customers on an international  basis has been and will continue to be critical to attracting and retaining our  worldwide customer base.





Offering  lower cost of ownership solutions for mature, non-critical processes.We  believe that our solutions for these markets have a lower cost of ownership,  which is attributed to factors such as efficient manufacturing processes, small  factory footprint and low consumables.





Our principal executive offices are located at  Ringland Way, Newport, South Wales NP18 2TA, United Kingdom, and our telephone  number is 44 (0) 1633.414.000.





We make available free of charge  through our website, www.trikon.com, our annual reports on Form 10-K, quarterly  reports on Form 10-Q, current reports on Form 8-K and all amendments to those  reports as soon as reasonably practicable after such material is electronically  filed with the Securities Exchange Commission. Our internet website and the  information contained therein or incorporated therein are not intended to be  incorporated into this Annual Report on Form 10-K or our other filings with the  SEC.





Our Products





Integrated
  circuits are built on a silicon or other material wafer base, and include a
  variety of circuit components, such as transistors and other devices, that are
  connected by multiple layers of wiring (interconnects). To build an integrated
  circuit, the transistors, capacitors and other circuit components are first
  created on the surface of the wafer by performing a series of processes to modify,
  deposit and remove selected film layers. Similar processes are then used to
  build the layers of wiring structures on the wafer.





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Our products are used in hundreds of steps in these  processes to create the integrated circuit, which includes among many different  processes, the following basic operations to create interconnect layers:





| |  | deposition, or adding material to a substrate,    typically a silicon wafer;
| | - | ----------------------------------------------------------------------------
| |   |                                                                             
| |  | patterning, or printing a circuit outline on the    substrate; and          
| |   |                                                                             
| |  | etching, or removing layers, of material from the    substrate.             




These, and other processes, are repeated in multiple cycles, building  up microscopically thin layers, thereby interconnecting countless transistors.





We supply production equipment for two of the most  typical deposition techniques, chemical vapor deposition and physical vapor  deposition, and plasma etching equipment for selective material removal.





Our proprietary technologies and leading-edge wafer  processes capabilities enable our customers to perform new and advanced  fabrication processes, thereby improving their products.





Chemical  Vapor Deposition





Chemical vapor deposition is a process that can be  used to deposit thin films of dielectric (insulating) and, to a lesser extent,  conductive materials. During the CVD process, gases that contain atoms of the  material to be deposited chemically react to form a thin film on the wafer.  Three types of dielectric layers deposited by CVD include:





| |  | the pre-metal dielectric (PMD), the insulating    layer between the active components and the first interconnect metal layer;
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                
| |  | the inter-metal dielectric (IMD), the insulating    layer between the different metal layers; and                            
| |   |                                                                                                                                
| |  | the final passivation layer that seals the completed    device from atmospheric moisture.                                      




The most common insulating films deposited by CVD are silicon dioxide,  which is used for the PMD and IMD layers, and silicon nitride, which is used  for the final passivation layer.





Our CVD products, Planar fxp and Planar 300 for  Flowfill, low k Flowfill and ORION deposition are targeted towards the IMD and  PMD markets and utilize our proprietary technologies. The IMD and PMD markets  require a suitable insulating material to separate the many levels of  microscopic wiring in an integrated circuit. The most common insulating  material is silicon dioxide, which, when deposited by conventional techniques,  is unable to fill small gaps.





Addressing
  the problems of conventional CVD technology, our Flowfill and low k Flowfill
  products are primarily directed towards the gap fill market and are used to
  deposit a planarizing layer that in some cases may be used without the need
  for chemical mechanical polishing. These products are cluster tools with up
  to six process module positions.





Our Flowfill process is a patented CVD technology that  was developed to form high quality silicon dioxide layers that possess the  properties of both gap fill and a high degree of planarization. When a high  degree of planarization is reached, the upper surface of the layer is  relatively flat, irrespective of the topography of the surface covered.  Flowfill can fill features less than 0.04 micron wide with a less than 8:1 height  to width ratio and simultaneously achieve a very high degree of planarization  for large gaps up to 20 microns.





Our Low k Flowfill product has similar gap filling and  planarization properties to the Flowfill product but provides a low k  dielectric process, which enables device manufacturers to speed up the  performance of their integrated circuits. Our Low k Flowfill technology is in  production with a tunable dielectric constant of between 2.8 and 3.3 and has  the capability of achieving a dielectric constant of 2.5.





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Our ORION technology, an ultra low k offering, is  aimed at advanced copper damascene applications where a k value of 2.5 or below  is required. ORION can be deposited at k values of both 2.5 and 2.15, values  which have been independently verified. Our internal measurements on films  deposited by the ORION product suggest that the k value can be reduced to 1.8.  The ORION films are deposited using the Planar 300 system, a bridge tool that  can process both 200mm and 300mm wafers. This tool has 6 process module  positions and is also capable of running Flowfill and low k Flowfill processes,  therefore offering customers a progression path from Flowfill to ORION  technology at both 200 and 300 mm production.





Physical  Vapor Deposition





Physical vapor deposition is a process used to deposit  conducting, liner and barrier metal layers on an integrated circuit. One of the  primary PVD methods is sputtering, a process in which an electrical discharge  creates ions of an inert gas, such as argon, which are then accelerated in a  vacuum at a target typically of pure metal or metal compound, such as aluminum,  aluminum compounds, tantalum or copper. The target atoms are sputtered away and  deposited on the wafer to form a thin film. Thin conductive films, when  patterned by lithography and etching, are used to wire an integrated circuit.  These sputtered thin films consist of:





| |  | the bulk conducting layers;                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                
| |  | the barrier and liner metal layers to prevent    diffusion or reactions between metals and silicon regions; and
| |   |                                                                                                                
| |  | the seed layer for electroplating.                                                                             




Our Sigma fxP and Sigma 300 systems are used to  sputter uniform layers of pure metals or metal alloys. These products are  cluster tools based in industry standard robotics platforms.





Sigma is designed to be one of the cleanest PVD  systems on the market, which is a key technology requirement for sputtering the  wafer with as high quality film as possible. Various process chambers are  available for specific functions. In particular, there are advanced PVD  chambers for depositing high quality barrier and liner layers for advanced  metalization structures. These consist of the long throw Hi-Fill and ionised  metal Advanced Hi-Fill PVD chambers for improved barrier and liner deposition  into high aspect ratio structures and an MOCVD process module for the most  advanced titanium nitride barrier layers. A Forcefill chamber is also available  which fills contact holes on semiconductor wafers with deposited aluminum  alloys by applying heat and isostatic high pressure. Additional chambers  consist of pre heat and sputter etch.





We are targeting both compound device makers and  barrier and liner applications for advanced silicon device production. We  believe that the Sigma systems have the lowest cost of ownership compared to  our main competitors, and cost of ownership is an important factor for  integrated circuit manufacturers.





Plasma  Etch





Plasma etch
  is a process that removes precisely defined patterns from the wafer surface
  by chemically converting exposed portions of the surface into a gaseous by-product
  that is pumped away from the process chamber. Almost all deposition processes
  create a film covering the entire wafer surface. Many layers are required only
  in selected parts of the wafer, for example to create wires of metal and may
  be created by a series of steps including a plasma etch step. First, the entire
  wafer surface is covered with sputtered aluminum alloys and its associated barrier
  layers. These conductive layers are then coated with photo resist and are exposed
  to the wiring pattern during the photolithography process. Plasma etching is
  then used to remove the exposed conductive layer, thus replicating the wiring
  pattern. The metal remains in place under the protective photo resist, which
  is then stripped off.





Our Omega plasma etch system is available on two  platforms as the Omega fxp and a single chamber Omega 201. The Omega fxP  offers up to 6 process modules combined with tools for wafer alignment and  cool-down and two vacuum cassette stations. Multiple chambers provide high  throughput for the high volume user or the option to mix and match different  plasma sources so that advanced sequential etching processes can be addressed.  The Omega 201 features our plasma source technologies in a single chamber  format that combines high performance etching with small footprint and low  costs. These attributes make the tool particularly well suited to  cost-sensitive manufacturing of silicon integrated circuits, compound device makers  and to the emerging photonics industry.





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Both platforms support our three main plasma sources,  our M0RI technology, Plasma Enhanced Reactive Ion Etch (PERIE) and  Inductively Coupled Plasma (ICP). Additional modules may also be added that  provide secondary functions, such as post etch corrosion processes. M0RI etch  technology offers the highest plasma density that provides process solutions  for the most advanced polysilicon, oxide and low k etch requirements. The ICP  is used extensively for high-density aluminium and polysilicon etching as well  as for a broad range of front and back face processing on compound  semiconductors. The PERIE offers medium plasma density for silicon and  dielectric etching where the feature sizes are less challenging.





We believes the
low cost of ownership, small  footprint, high reliability and process flexibility
make the Omega particularly  suitable for consumer, compound integrated circuit
and planar optical  waveguides manufacture where a wide range of 
layers can be etched on a  limited number of systems.





Our History





In August 1995,
  we completed our initial public offering of common stock, in which we received
  net proceeds of $40.1 million.





In November 1996, we acquired Electrotech Limited and  Electrotech Equipments Limited (together referred to as Electrotech), both  United Kingdom companies, for a total consideration of $145.7 million. Of this  consideration, $86.0 million was attributed to purchased in process technology  and was expensed in our statement of operations for the year ended December 31,  1996. We funded the cash portion of the acquisition price through the issuance  of 7 1/8% convertible notes, most of which were redeemed as part of a debt to  equity conversion in 1998, with the remaining notes in issue redeemed on  maturity in October 2001.





During 1997, the semiconductor equipment industry  entered a severe downturn, which adversely affected our revenues and cash  flows. In response to the downturn, we restructured our operations, which  included the closure of our M0RI etch operations in California and the sale of  non exclusive licenses for our M0RI source and ForceFill technologies to  Applied Materials and our M0RI source technology to Lam Research.





Due to the
  market conditions and the greatly increased number of shares in issuance, resulting
  from the debt to equity conversions completed as part of the restructuring activities,
  our stock price fell below $1.00 and it was delisted from the Nasdaq National
  Market and moved to the OTC bulletin board on November 11, 1998. On December
  17, 1999, following an improvement in our operating results, we effected a 10
  for 1 reverse stock split and on May 10, 2000 our common stock was relisted
  on the Nasdaq National Market.





After our reorganization, we relocated our head office  and management team to the United Kingdom, where we conduct our manufacturing  operations.





Marketing, Sales and Customer Support





We sell, install and service our systems to  semiconductor manufacturers worldwide. Our customers include a wide range of  companies, including certain of the 10 largest device makers, the leading  producers of compound and optical semiconductors and US government contractors.  We offer highly reliable products that give our customers a competitive edge  through technology or cost advantage, comprehensive field support and a  responsive parts replacement and service program. This builds a stable,  satisfied and growing customer base.





We have established multiple sales channels to market  products and services to match our efforts in each region. We currently market  and sell our products and technologies through a combination of direct sales  and agency and distributor arrangements.





Our sales are divided among three geographic regions   Europe, North America and Asia. Set forth below in tabular format is the  geographic distribution of our net sales for the past three fiscal years,  expressed as a percentage of sales.





|     |  | Europe |    | North    America |  | Asia |  
|---- |  | ------ | -- | ---------------- |  | ---- | -
|     |  |        |    |                  |  |      |  
|2002 |  |        | 64 | %                |  | 33   | %
|2001 |  |        | 60 | %                |  | 32   | %
|2000 |  |        | 64 | %                |  | 27   | %




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In North America, we market and sell our products  principally through our direct sales organization supported by service  operations located in Orange County, CA; Dallas, TX; Portland, OR; New Haven,  CT; and Ottawa, Canada.





In Europe, we market and sell our products primarily  through our direct sales and service operations in the United Kingdom, the  Netherlands, France and Germany.





In South Korea, we market and sell our products  directly through our wholly owned South Korean subsidiary. In Japan and Taiwan,  we operate with distribution support from our United Kingdom and South Korea  offices. We are currently assessing our Asian organization and we expect to  increase the resources allocated to this region during fiscal 2003.





Our total revenue includes amounts from certain  individual customers that exceed 10% of our total revenue. For the year ended  December 31, 2002, Philips was the only customer who exceeded 10% of our revenue,  accounting for 11% of our revenue. In 2001, Infineon AG represented 17% and  Philips represented 15% of our total revenues respectively. Our largest  customers may vary from year to year depending upon, among other things, a  customers budget for capital expenditures, plans for new fabrication  facilities and new product introductions.





We provide
  customers with evaluation systems of our new products as part of our sales efforts.
  The provision of evaluation systems is an important step in the lengthy sales
  cycle. The average duration of an evaluation period for systems is approximately
  one year. Consequently, as we expand our sales efforts, particularly in the
  low k market, we believe that a significant increase in our investment in demonstration
  and evaluation systems may be needed.





We have an international customer support group at  Newport, UK in addition to the local office service and support staff at our  regional centers. We also have a dedicated training suite at our Newport  facilities housing a clean room with complete systems and the latest generation  training aids. The Newport based support team is divided into CVD, PVD and  plasma etch groups responsible for quality and technical support, a training  and support documentation group and a spares supply group.





Research, Development and Engineering





We believe that our future success will depend  primarily upon our ability to continue to improve our systems and technologies  and to develop new products that compete effectively on the basis of total cost  of ownership and technical performance. These technologies and systems will  also need to meet customer requirements and emerging industry standards.  Accordingly, we devote a significant portion of our personnel and our financial  resources to research and development programs and seek to maintain close  relationships with our customers in order to remain responsive to their product  needs. This commitment is evidenced by the 11% increase in research and  development expenditures in the year ended December 31, 2002 as compared to the  prior year, despite the downturn in the semiconductor industry.





As of December
  31, 2002, we employed 75 professional and technical personnel in research, development
  and engineering. Our research and development group is responsible for identifying
  new technology applications and developing processes to meet customer requirements.
  Major research and development programs currently address CVD deposited dielectrics
  for ILD/IMD and shallow trench isolation gap fill applications and ultra low
  k dielectrics for copper damascene applications, PVD and MOCVD deposited barrier/liner/seed
  applications and advanced oxide/low k and silicon etch applications for silicon
  integrated circuits and the deposition and etching of critical layers in compound
  semiconductor and planar optical waveguide devices.





Our expenditure for research and development during  the fiscal years 2002, 2001 and 2000 were $10.7 million, $9.7 million and $8.4  million, respectively





Manufacturing





We manufacture most of our key technology components  for our products at our Newport, United Kingdom facility, where substantially  all of our long-lived assets are maintained. This approach has enabled us to  ensure quality control and compliance with government regulation and reduce  dependence on third party suppliers. Our United Kingdom operations are ISO 9001  compliant.











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Our Newport facility has
world-class
facilities which  are built and operated at the high levels of cleanliness
required in the  semiconductor industry. Our manufacturing and final test area
is class 1000  representing a high level of cleanliness (a class is a standard definition which represents a  number of particles per million, the smaller the number of particles the cleaner  the facility). With a class 100 engineering clean room and a class 10 process  and product demonstration room, our engineering and customer support areas are  even cleaner. We also have a dedicated training suite of classrooms and a clean  workshop stocked with our products, both current and former generations, where  we are able to train our own and our customers engineers.  We also operate two additional sites near  the Newport facility where assemblies are made, a sheet metal fabrication  workshop producing enclosures, panels and other parts and a CNC machinery  center, producing chamber components and other parts and wafer transport  assemblies. In order to ensures that our facilities remain competitive in both  quality and price, and to help cover fixed costs, the CNC facility also  produces
products for third parties.





Competition





The markets we serve are highly competitive and  subject to rapid technological change. Historically, new technologies have only  gained acceptance when industry leaders have concurrently adopted such new  technologies. Significant competitive factors include timing of new product  offerings, system performance, cost of ownership, size of installed base, depth  and breadth of product line and customer support.





We face significant competition from various suppliers  of systems that utilize similar or alternative technologies. Competitors range  from very large, well capitalized corporations with a diversified product  portfolio to smaller companies that compete with a single innovative product.  In the CVD market, our primary competitors are Applied Materials, ASMI,  Novellus and Unaxis, as well as other CVD manufacturers and track manufacturers  for spin on glass, or SOG, deposition, such as Tokyo Electron. In the PVD  market, we face competition from suppliers such as Anelva, Applied Materials,  Novellus,  Ulvac, Unaxis, and Veeco. In  the etch market, we face competition from suppliers including Applied  Materials, Hitachi, Lam Research, Tegal, Tokyo Electron and Unaxis. Virtually  all of these competitors are substantially larger companies, some with broader  product lines. They have well established reputations in the markets in
which  we compete, greater experience with high volume manufacturing, broader name  recognition, substantially larger customer bases, and substantially greater  financial, technical, manufacturing and marketing resources.





We have granted non-exclusive, worldwide, paid-up  licenses of our M0RI source and Force Fill PVD technologies to Applied  Materials and granted a non-exclusive, worldwide, paid-up license of our M0RI  source technology to Lam Research. As a result, in the future our PVD and etch  products may have to compete with products of Applied Materials or Lam Research  based on our technologies. The license agreements do not preclude us from  utilizing, or licensing to other third parties, the licensed technologies.





Backlog





As of December 31, 2002, our
backlog was approximately  $8.5 million, as compared to approximately $13.7 million at December
31, 2001.  Our backlog consists of system purchase orders that provide for delivery within  the
following year and the unearned revenue of systems previously shipped.  Backlog includes only
systems for which a purchase order has been received and  a delivery date assigned. Backlog at
December 31, 2002 includes one system for  $1.6 million for which the purchase order is subject
to our customer receiving  final United States government approval of funding. Orders are
typically  subject to cancellation or delay by the customer with limited or no penalties.
  The reduction in our backlog is directly attributable  to the
continuing and protracted downturn in the semiconductor industry and the  resulting low
order volume in 2002. Because of possible changes in delivery schedules and cancellations of orders,
the stated backlog is not necessarily  indicative of sales for any
future period nor is a backlog any assurance that  we will realize profit from filling
these orders.





Intellectual Property





We rely on a variety of types of intellectual property  protection to protect our proprietary technology, including patent, copyright,  trademark and trade secret laws, non-disclosure agreements, and other  intellectual property protection methods. We currently hold 31 US and 56  foreign patents. As of December 31, 2002, we have 32 patent applications  pending in the US and 169 patents pending in the rest of the world, and we  intend to file additional patent applications as appropriate. The issued  patents and any subsequent issued patent arising from our pending applications  expire between 2009 and 2022.





Our success and ability to compete depends in large  part upon protecting our proprietary technology. We rely on a combination of  patent, trade secret, copyright and trademark laws, non-disclosure and other  contractual agreements and technical measures to protect our proprietary  rights.





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There can be
  no assurance that patents will be issued on our pending patent applications
  or that competitors will not be able to legitimately ascertain proprietary information
  embedded in our products that is not covered by patent or copyright. In such
  case, we may be precluded from preventing the competitor from making use of
  such information. In addition, should we wish to assert our patent rights against
  a particular competitors product, there can be no assurance that any claim
  in any of our patents will be sufficiently broad nor, if sufficiently broad,
  any assurance that our patents will not be challenged, invalidated or circumvented,
  or that we will have sufficient resources to prosecute our rights.





In the normal course of business, we receive, from  time to time inquiries regarding possible patent infringement. In dealing with  such inquiries, it may become necessary or useful for us to obtain or grant  licenses or other rights. However, there can be no assurance that such licenses  or rights will be available to us on commercially reasonable terms. If we are  not able to resolve a claim, negotiate a settlement of the matter, obtain  necessary licenses on commercially reasonable terms and/or successfully  prosecute or defend our position, our business, financial condition and results  of operations could be materially and adversely affected.





Environmental Matters





We are subject to a variety of federal, state and  local laws, rules and regulations relating to the use, storage, discharge and  disposal of hazardous chemicals and gases used during customer demonstrations  and in research and development activities. Public attention has increasingly  been focused on the environmental impact of operations that use hazardous  materials. In 1995, the United Kingdom adopted a new and comprehensive environmental  law known as the Environmental Act 1995, which, among other things, deals with  the allocation of responsibility for the clean up of contaminated property and  expands potential liability with respect to the remediation of such  contamination. We own or lease a number of facilities in the United Kingdom,  and failure to comply with present or future regulations could result in  substantial liability, suspension or cessation of our operations, restrictions  on our ability to expand at our present
locations, or requirements for the  acquisition of significant equipment or other significant expense. To date,  compliance with environmental rules and regulations has not had a material  effect on our operations. We believe that we are in material compliance with all  applicable environmental rules and regulations and are in compliance with  ISO14000 environmental standards.





Employees





At December 31, 2002, we had 325 full-time employees  (including employees on temporary contracts), including 75 engaged in research,  development and engineering, 22 in sales and marketing, 90 in customer support,  113 in manufacturing and facilities, and 25 in general administration and  finance.





None of our employees are covered by a collective  bargaining agreement and we consider our relations with our employees to be  good.





ITEM  2.    PROPERTIES





Certain information concerning our principal  properties at December 31, 2002 is set forth below:





|Location                              |  | Type                                         |  | Principal
        Use                                                                   |  | Square Footage |  | Property Interest
|------------------------------------- |  | -------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | -------------- |  | -----------------
|                                      |  |                                              |  |                                                                                         |  |                |  |                  
|Newport,
        United Kingdom       |  | Office,
        Manufacturing & Laboratories |  | Headquarters,
        Manufacturing, Sales and Customer Support, Research & Engineering |  | 110,000        |  | Leased           
|                                      |  |                                              |  |                                                                                         |  |                |  |                  
|Bristol,
        United Kingdom       |  | Office,
        Manufacturing & Warehouse    |  | Vacant                                                                                  |  | 55,700         |  | Owned            
|                                      |  |                                              |  |                                                                                         |  |                |  |                  
|Cwmfelin-fach,
        United Kingdom |  | Office,
        Manufacturing and Warehouse  |  | Manufacturing
        of Components                                                     |  | 20,000         |  | Leased           
|                                      |  |                                              |  |                                                                                         |  |                |  |                  
|Bristol,
        United Kingdom       |  | Office,
        Manufacturing & Warehouse    |  | Manufacturing
        of Components                                                     |  | 9,000          |  | Leased           
|                                      |  |                                              |  |                                                                                         |  |                |  |                  




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|Orange
        County,USA |  | Office |  | North
        American Headquarters, Sales & Support |  | 1,600 |  | Leased
|------------------------- |  | ------ |  | ---------------------------------------------------- |  | ----- |  | ------




We have a number of smaller properties and field  offices located in the United States, the United Kingdom, Germany, France and  South Korea. We believe that our properties adequately serve our present needs.





ITEM 3.    LEGAL  PROCEEDINGS





As of March 25, 2003, there were no material, pending legal proceedings  to which we or our subsidiaries are a party. From time to time, we become  involved in ordinary, routine or regulatory legal proceedings incidental to our  business.





ITEM  4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





No matters were submitted to a vote of our  stockholders during the quarter ended December 31, 2002.





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PART II





ITEM 5.    MARKET  FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS





Market  for the Registrants Common Equity





Our common
  stock trades on the Nasdaq National Market under the symbol TRKN.
  The quarterly high and low sale prices for Common Stock as reported by the Nasdaq
  National Market for the periods indicated below are as follows.





|               |  | High |       | Low |  
|-------------- |  | ---- | ----- | --- | -
|               |  |      |       |     |  
|2001           |  |      |       |     |  
|First Quarter  |  | $    | 15.63 |     | $
|Second Quarter |  | $    | 15.18 |     | $
|Third Quarter  |  | $    | 14.05 |     | $
|Fourth Quarter |  | $    | 11.95 |     | $
|2002           |  |      |       |     |  
|First Quarter  |  | $    | 15.90 |     | $
|Second Quarter |  | $    | 15.02 |     | $
|Third Quarter  |  | $    | 9.13  |     | $
|Fourth Quarter |  | $    | 7.10  |     | $




As of January 21, 2003, there were 120 holders of  record of our common stock.





We have never
  declared or paid dividends on our common stock and we do not expect to pay dividends
  on our common stock in the foreseeable future.





Our Series
  H Preferred Stock was retired during fiscal 2001. Prior to being retired, dividends
  due during fiscal 2001 were paid with 12,477 new shares of Series H Preferred
  Stock and cash of $50,000.





On March 18,
  2003, the closing price of the common stock as reported on the Nasdaq National
  Market was $3.33 per share.





Unregistered  Sales of Registrants Equity Securities During Last Fiscal Year





During the year ended December 31 2002, we sold  1,093,348 shares of our common stock in a private transaction with several  institutional shareholders. The gross proceeds of the sale were $12.6 million  and our costs amounted to approximately $837,000.





ITEM  6.    SELECTED CONSOLIDATED FINANCIAL DATA





The following selected consolidated financial data are  qualified by reference to and should be read in conjunction with our  consolidated financial statements and notes thereto and Managements  Discussion and Analysis of Financial Condition and Results of Operations,  which are included elsewhere in this report. The selected consolidated financial  data set forth below as of December 31, 2002, and 2001 and for the years ended  December 31, 2002, 2001, and 2000 have been derived from our audited financial  statements included elsewhere in this annual report. The selected consolidated  financial data set forth below as of December 31, 2000, 1999 and 1998 and for  the years ended December 31, 1999 and 1998 have been derived from our audited  financial statements that are not included in this annual report.





As discussed in the Managements Discussion and  Analysis of Financial Condition and Results of Operations, we changed our  accounting policy with respect to revenue recognition in the year ended  December 31, 2001. In accordance with Accounting Principles Board Opinion 20,  we accounted for the change as a cumulative effect on the prior years resulting  from the change to a different revenue recognition policy. As a result, the  selected consolidated financial data for the periods ending on and before  December 31, 2000 have not been restated, but pro forma revenue, net income and  earnings per share are included as a footnote to the selected consolidated  data.





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|                                                                                                                                 |  | Year Ended    December 31                                   |        
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- | -------
|                                                                                                                                 |  |                                                             |        
|                                                                                                                                 |  | 2002                                                        |        
|                                                                                                                                 |  |                                                             |        
|                                                                                                                                 |  | (In thousands of U.S.    dollars, except share information) |        
|Operating    Data:                                                                                                               |  |                                                             |        
|Revenues:                                                                                                                        |  |                                                             |        
|Product sales                                                                                                                    |  | $                                                           | 32,765 
|License revenues                                                                                                                 |  |                                                             | 50     
|                                                                                                                                 |  |                                                             |        
|Total revenues                                                                                                                   |  | $                                                           | 32,815 
|                                                                                                                                 |  |                                                             |        
|Costs and expenses:                                                                                                              |  |                                                             |        
|Cost of goods sold                                                                                                               |  |                                                             | 24,490 
|Research and    development                                                                                                      |  |                                                             | 10,700 
|Selling, general and    administrative                                                                                           |  |                                                             | 19,537 
|Restructuring costs                                                                                                              |  |                                                             |       
|                                                                                                                                 |  |                                                             |        
|Total costs and    expenses                                                                                                      |  |                                                             | 54,727 
|                                                                                                                                 |  |                                                             |        
|(Loss) income from operations                                                                                                    |  |                                                             | (21,912
|Other income                                                                                                                     |  |                                                             |       
|Interest:                                                                                                                        |  |                                                             |        
|Interest expense                                                                                                                 |  |                                                             | (1,197 
|Interest income                                                                                                                  |  |                                                             | 1,309  
|                                                                                                                                 |  |                                                             |        
|(Loss) income before income tax (benefit) provision                                                                              |  |                                                             | (21,800
|Income tax (benefit) provision                                                                                                   |  |                                                             | (2,165 
|                                                                                                                                 |  |                                                             |        
|Net (loss) income before extraordinary item and    cumulative effect of change in accounting principle                           |  |                                                             | (19,635
|Extraordinary item                                                                                                               |  |                                                             |       
|Cumulative effect of change in accounting principle                                                                              |  |                                                             |       
|                                                                                                                                 |  |                                                             |        
|Net (loss) income                                                                                                                |  | $                                                           | (19,635
|                                                                                                                                 |  |                                                             |        
|Net (loss) income applicable to common shares                                                                                    |  | $                                                           | (19,635
|                                                                                                                                 |  |                                                             |        
|(Loss)    Income per common share data (1):                                                                                      |  |                                                             |        
|Basic:                                                                                                                           |  |                                                             |        
|(Loss) income applicable to common shares before    extraordinary item and cumulative effect of change of accounting principle   |  | $                                                           | (1.57  
|Extraordinary gain                                                                                                               |  |                                                             |       
|Cumulative effect of change in accounting principle                                                                              |  |                                                             |       
|                                                                                                                                 |  |                                                             |        
|Net (loss) income                                                                                                                |  | $                                                           | (1.57  
|                                                                                                                                 |  |                                                             |        
|Diluted:                                                                                                                         |  |                                                             |        
|(Loss) income applicable to common shares before    extraordinary item and cumulative effect of a change of accounting principle |  | $                                                           | (1.57) 
|Extraordinary gain                                                                                                               |  |                                                             |       
|Cumulative effect of change in accounting principle                                                                              |  |                                                             |       
|                                                                                                                                 |  |                                                             |        
|Net (loss) income                                                                                                                |  | $                                                           | (1.57  
|                                                                                                                                 |  |                                                             |        
|Average common shares used                                                                                                       |  |                                                             |        
|in the calculation (1) - Basic                                                                                                   |  |                                                             | 12,533 
|- Diluted                                                                                                                        |  |                                                             | 12,533 
|Earnings    per common share data (2) (Pro forma):                                                                               |  |                                                             |        
|Pro-forma amounts assuming the accounting change is    retrospectively applied                                                   |  |                                                             |        
|Revenue                                                                                                                          |  |                                                             |        
|Net income                                                                                                                       |  |                                                             |        




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|Earnings per share     basic         |  |  |  |  |  |  |  |  |  |  | $ | 0.07 |  | $ | 1.27 | 
|------------------------------------- |  |  |  |  |  |  |  |  |  |  | - | ---- |  | - | ---- | 
|Earnings per share -    fully diluted |  |  |  |  |  |  |  |  |  |  | $ | 0.07 |  | $ | 1.25 | 




|                                                                       |  | December    31 |                                  
|---------------------------------------------------------------------- |  | -------------- | ---------------------------------
|                                                                       |  |                |                                  
|                                                                       |  | 2002           |                                  
|                                                                       |  |                |                                  
|                                                                       |  |                | (In thousands of U.S.    dollars)
|Balance Sheet Data:                                                    |  |                |                                  
|Working capital                                                        |  | $              | 55,044                           
|Total assets                                                           |  |                | 97,188                           
|Long-term debt and capital lease obligations , less    current portion |  |                | 10,717                           
|Stockholders equity (3),                                              |  |                | 60,520                           




|(1) | The average number of    common shares used to compute per share amounts for 1998 has been adjusted to    reflect the one for ten reverse stock split effective December 17, 1999. See    Note 1 of Notes to Consolidated Financial Statements in this Report for    further explanation of the method used to determine the number of shares used    to compute per share amounts.                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) | We changed our accounting    policy with respect to revenue recognition in the year ended December 31,    2001. In accordance with Accounting Principles Board Opinion 20, we accounted    for the change as a cumulative effect on the prior years resulting from the    change to a different revenue recognition policy. As a result, the selected    consolidated financial data for the periods ending on and before December 31,    1999 have not been restated, but pro forma revenue, net income and earnings    per share are included as a footnote to the selected consolidated data
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(3) | Shareholders equity for    December 31, 2000 and earlier includes convertible preferred stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 




ITEM  7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS





Significant  Accounting Policies and Critical Accounting Estimates





General





Our discussion and analysis of the financial condition  and results of operations are based upon our consolidated financial statements,  which have been prepared in accordance with United States generally accepted  accounting principles. The preparation of these statements requires us to make  estimates and judgments that affect the reported amount of assets, liabilities,  revenues and expenses. On an ongoing basis, management evaluates its estimates  and judgments, including those related to bad debts, inventories, income taxes,  and warranty and installation obligations. We base our estimates and judgments  on historical experience and on various other factors which we believe to be  reasonable in the circumstances, the results of which form the basis for making  judgments about the carrying values of assets and liabilities that are not  readily apparent from other sources. Actual results may differ from these  estimates under
different assumptions or conditions. We consider our accounting  policies related to revenue recognition, foreign currency translation, the  valuation of inventories including demonstration inventory and accounting for  the costs of installation and warranty obligations to be critical accounting  policies due to the estimation process included in each such policy.





Revenue  Recognition





We recognize
  revenues from equipment sales when persuasive evidence of an arrangement exists,
  the price of the goods and services being sold is fixed or determinable, delivery
  has occurred or services rendered and we are reasonably assured that we will
  collect payment. Generally, we recognize revenue on shipment, as the equipment
  is pre-tested in the factory prior to shipment and our terms of business are
  FOB factory. For new customers, or new products, revenue is recognized on shipment
  only if the customer attends and approves the pre-shipment testing procedures
  and we, and the customer, are satisfied that the performance of the equipment,
  once installed and operated, will meet the customer-defined specifications.
  Generally, even with new customers we recognize the revenue on shipment because
  the customer attends and approves the pre-shipment testing. The amount of revenue
  recorded is reduced by the amount of any customer retention (typically between
  10 and 20%), which is not payable by the customer until installation is completed
  and final customer acceptance is achieved. The amount of customer retentions
  deferred at December 31, 2002 was $1.2 million compared to $5.1 million at December
  31, 2001. The provision of installation and commissioning services are not considered
  essential to the functionality of the equipment.





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Equipment sold as demonstration or evaluation units  are recognized for revenue on transfer of title and either final acceptance, or  satisfactory completion of testing to demonstrate that the equipment meets all  the customer defined specifications.





Revenue related to spare parts is recognized on  shipment and revenue related to service contracts is recognized ratably over  the duration of the contracts.





Foreign  Currency Translation





Most of our operations are located within the United  Kingdom and most of our costs are incurred in British pounds. Our system sales,  however, are generally in US dollars and, to a lesser extent, in euros and we  report in US dollars. As a result, fluctuations in the exchange rate between  the US dollar and the British pound have a significant effect on our reported  earnings and net asset position. We have determined that the functional  currency for all UK operations is the British pound and as a result our actual  expenses expressed in US dollars will fluctuate with changes in foreign  currency exchange rates and result in currency gains and losses, which are  charged to selling, general and administrative expenses. Changes in the value  of non-US net assets as a result of these movements of foreign currency  exchange rates are treated as changes to the cumulative translation adjustment  on the balance sheet. Selling, general and
administrative expenses in the year  ended December 31, 2002 included a loss arising from foreign currency  adjustments of $2,100 compared to a gain of   $1.1 million and $0.9 million in the years ended December 31, 2001 and  2000 respectively.





Inventory  valuation





Inventories are stated at the lower of cost or net  realizable value, using standard costs which approximate to actual cost. We  maintain a perpetual inventory system and continuously record the quantity on  hand and standard cost of each product including purchased components sub  assemblies and finished goods. We maintain the integrity of the perpetual  inventory through a cycle stock count program. Our standard costs are  re-assessed at least annually and generally reflect the most recent purchase  cost and currently achievable assembly and test labor and overhead rates. We  estimate our labor and overhead rates based upon average utilization rates and  treat as a period cost abnormal absorption variances, which arise due to low or  high production volumes. In the current industry downturn, and low levels of  production, significant negative volume variances are being experienced, which  has resulted in the lower gross margin as
compared to the prior year.





We also make provision for slow moving and obsolete  inventory and evaluate their adequacy on a quarterly basis. For our work in  process and finished goods inventory, which generally consist of specific  systems or modules, we compare the inventory on hand to current sales and  market forecasts and other information that indicates the ability to identify a  purchaser for such equipment. We apply a formula approach to reserves against  raw materials and spares inventory based upon 12 months historic usage,  applying different criteria to components that are required for current  products, non current products and spares.





A major component of the estimate of inventory  reserves is our estimate related to future customer demand, technological and  or market obsolescence, the equipment operating life at the customer and  general semiconductor market conditions. If future customer demand or market  conditions are less favorable than our projections, then additional inventory write-downs  may be required, and these would be reflected in cost of sales in the period  the reserves were adjusted.





Installation  and Warranty





Our contracts
  cover on-site installation services and provide for a warranty of the machine.
  Generally, we accrue for the costs of installation and commissioning services
  at the time of revenue recognition. Our standard warranty period varies from
  12 to 24 months, depending on a number of factors including the specific equipment
  purchased. We account for the estimated warranty cost as a charge to cost of
  sales at the time we recognize revenue. The warranty cost is based upon historic
  product performance and is based on a rolling 12-month average historic cost
  per machine per warranty month outstanding. We also recalculate the warranty
  liability for all remaining systems still under warranty using the most recent
  historic average and the difference is included as a component of cost of sales.
  We do not maintain any general reserves for warranty obligations. Actual performance
  in the future may vary from historic costs, including the identification of
  defects not currently identified, which could result in adjustments to our warranty
  reserves in future periods that are more volatile than in recent years.





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Results of Operations





The following table sets forth certain operating data  as a percentage of total revenue for the periods indicated:





|                                                                                  |  | Years    Ended December 31,
|--------------------------------------------------------------------------------- |  | ---------------------------
|                                                                                  |  |                            
|                                                                                  |  |                            
|                                                                                  |  |                            
|Consolidated    Statements of Operations Data:                                    |  |                            
|Revenues:                                                                         |  |                            
|Product sales                                                                     |  |                            
|License revenues                                                                  |  |                            
|                                                                                  |  |                            
|Total revenues                                                                    |  |                            
|Costs of goods sold                                                               |  |                            
|                                                                                  |  |                            
|Gross profit                                                                      |  |                            
|Operating expenses:                                                               |  |                            
|Research and    development                                                       |  |                            
|Selling, general and    administrative                                            |  |                            
|Restructuring costs                                                               |  |                            
|                                                                                  |  |                            
|Total operating    expenses                                                       |  |                            
|                                                                                  |  |                            
|(Loss) income from operations                                                     |  |                            
|Other income                                                                      |  |                            
|                                                                                  |  |                            
|Interest income (expense), net                                                    |  |                            
|                                                                                  |  |                            
|(Loss) income before income tax charge                                            |  |                            
|Income tax (credit) charge                                                        |  |                            
|                                                                                  |  |                            
|Net (loss) income before cumulative effect of a    change in accounting principle |  |                            
|Cumulative effect of change in accounting principle                               |  |                            
|                                                                                  |  |                            
|Net (loss) income                                                                 |  |                            
|                                                                                  |  |                            




Comparison  of the Years Ended December 31, 2002 and 2001





Product
  Sales. Product sales for the year ended December 31, 2002 decreased 66%
  to $32.8 million compared to $97.0 million for the year ended December 31, 2001.
  Shipments for the year ended December 31, 2002 were $28.9 million compared to
  $92.8 million shipped in the prior year. The decline in sales and shipments
  in the year reflects the effects of the protracted and continuing global slowdown
  in the semiconductor industry. Our revenues in fiscal 2001 reflect our significant
  backlog from fiscal 2000, prior to the onset of the current global slowdown.
  Our customers continue to be cautious regarding their capital expenditure plans
  and orders for our products remained depressed.  The protracted
  and continuing global slowdown in the semiconductor industry will continue to
  result in depressed levels of revenue for fiscal 2003.





Our sales by product are as follows:





|                           |  | Year Ended    December 31, |    
|-------------------------- |  | -------------------------- | ---
|                           |  |                            |    
|                           |  | 2002                       |    
|                           |  |                            |    
|PVD                        |  |                            | 34 
|CVD                        |  |                            | 17 
|Etch                       |  |                            | 22 
|Spares
        and service |  |                            | 27 
|                           |  |                            |    
|Total                      |  |                            | 100
|                           |  |                            |    







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Sales outside of the United
States accounted for  approximately 67% and 68% of total revenues for the years ended December
31,  2002 and 2001, respectively. We expect that sales outside of the United States will
continue to represent a significant percentage of our product sales through  2003.
In addition, because of the large unit price associated with our systems, we anticipate
 that our product sales will  continue to be made to a small number of customers in each
  quarter. The  quantity of product shipped may fluctuate significantly from quarter
   to quarter  and the individual customers to whom these products are sold can also
    change  from quarter to quarter. Given the significance of each individual sale,
	 the  percentage of sales made outside of the United States may also fluctuate
	 significantly from quarter to quarter. Revenues for the year ended December 31,
	 2001 included cancellation fees of $1.4 million.





License  Revenues.License revenues of $50,000 in the year ended  December 31, 2002 related to power supply technology. No license revenues were  earned during the year ended December 31, 2001.





Gross Margin
  on Product Sales. The gross margin on product revenues for the year ended
  December 31, 2002 was 25.4% as compared to 46.7% for the year ended December
  31, 2001. Cost of sales for the year ended December 31, 2002 included $345,000
  relating to the costs of a reduction in workforce compared to $302,000 in the
  year ended December 31, 2001. Cost of sales for the year ended December 31,
  2002 also includes a non cash charge of $2.3 million with respect to write off
  of inventory associated with the current downturn in the semiconductor business
  compared to a $1.0 million write-off in the prior year. In addition, under utilization
  of manufacturing and customer support costs negatively affected the gross margin
  in the year ended December 31, 2002. Sales of higher margin products and a receipt
  of fees for order cancellations offset, somewhat, the factors contributing to
  the reduced gross margin in the year ended December 31, 2002.





Research
  and Development Expenses. Research and development expenses for the year
  ended December 31, 2002 were $10.7 million or 32.6% of total revenues compared
  with $9.7 million or 9.9% of total revenues for the prior year. The major focus
  of our research and development efforts continues to be the development of new
  processes in further advancing our proprietary PVD, CVD and etch technologies
  as well as adding enhancements to our existing products.





Selling,
  General and Administrative Expenses. Selling, general and administrative
  expenses for the year ended December 31, 2002 were $19.5 million, or 59.6% of
  total revenues, compared to $21.5 million, or 22.2% of total revenues, in the
  year ended December 31, 2001. Selling, general and administrative expenses in
  the year ended December 31, 2002 includes losses arising from foreign currency
  adjustments of $2,100 compared to gains of $1.1 million recognized in the prior
  year. As a result of the continuing and severe downturn in the industry we have
  sought to control our selling general and administration costs. While the reduction
  in selling general and administrative expenses when reported in US dollars for
  the year ended December 31, 2002 compared to the prior year was only 9%, the
  movement in the US dollar exchange rate to the British pound had an adverse
  effect on selling general and administration by 5%. Further, the inclusion of
  a gain in the year ended December 31, 2001 from foreign currency transactions
  of $1.1 million also negatively affects the comparison of the two years.





Result 
  from Operations. As a result of the decrease in revenue for the year ended
  December 31, 2002 and our strategy to keep our key infrastructure in place during
  the current downturn, we incurred a loss from operations of $21.9 million or
  66.8% of revenue compared with income from operations of $14.2 million or 14.6%
  of revenue in the prior year.





Other  Income. We earned $681,000 during the year ended December 31,  2001 in connection with the sale of property we no longer required for our  operations.





Interest  Income and Expense, Net. Net interest income was $112,000 for  the year ended December 31, 2002 compared with net interest expense of $154,000  for the year ended December 31, 2001. The achievement of interest income is due  primarily to interest income received on increased cash balances during fiscal  2002 offsetting interest expense on the bank term loan. In addition, interest  cost on our 7 1/8% subordinated convertible notes ceased in 2001 following  their payment in full in October 2001.





Income  Taxes.  For the year  ended December 31, 2002, we recorded a tax credit of $2.2 million compared to a  charge of $3.4 million for year ended December 31, 2001 resulting in an  effective income tax rate of 9.9% and 23.4%, respectively.








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We generated
  a significant portion of our consolidated pre-tax losses for the year ended
  December 31, 2002, and pre-tax income for the year ended December 31, 2001,
  within the United Kingdom, which has a lower statutory rate of 30% compared
  to the US federal rate of 35%. In addition to the lower statutory rate, the
  generation and use of net operating losses results in fluctuations in the effective
  tax rate, as we have not recognized any deferred tax assets with respect to
  net operating losses, which can only be utilized against future profits. We
  incurred United Kingdom income taxes in fiscal 2001 and we were able to carry
  back some of the tax losses incurred in the United Kingdom during fiscal 2002
  against these taxes. The remaining operating losses in the year ended December
  31, 2002, are carried forward to future periods and we did not recognize a deferred
  tax asset with respect to these losses. See Note 6 of the Notes to the
  financial statements for a detailed reconciliation of the tax rate for 2002
  and 2001.





As of December
  31, 2002, we had and US federal losses of $22.3 million, various US state operating
  losses and United Kingdom net operating losses of approximately $18.4 million,
  which can be offset against future income. Our ability to use our US and United
  Kingdom net operating losses and credit carry forwards will depend upon the
  ability to generate future income within the US and the United Kingdom to utilize
  these losses and a portion of our US net operating losses are subject to annual
  limitations arising from a change of control as defined by s382 of the internal
  revenue code, as revised.





In addition
  to the United States and the United Kingdom, we have operating subsidiaries
  in several other countries, and each of these subsidiaries are taxed based on
  the laws of the jurisdiction in which they operate. Because taxes are incurred
  at the subsidiary level, and one subsidiarys tax losses cannot be used
  to offset the taxable income of subsidiaries in other jurisdictions, our consolidated
  effective tax rate can vary significantly to the extent we reports tax losses
  in some subsidiaries and taxable income in others. We also assume that our profits
  generated in overseas jurisdictions are reinvested overseas. The payment of
  dividends or distributions by the subsidiaries to the United States may be subject
  to withholding taxes in the country of domicile and further taxation by federal
  or state authorities subject to the terms of relevant tax treaties.





Comparison  of the Years Ended December 31, 2001 and 2000





Product  Sales. Product sales for the year ended December 31, 2001  decreased 9% to $97.0 million compared to $106.7 million for the year ended  December 31, 2000. Shipments for the year ended December 31, 2001 were $92.8  million compared to $112.2 million shipped in the prior year. The decline in  sales and shipments in the year reflects the effects of the global slowdown in  the semiconductor industry which commenced around the start of fiscal 2001, and  would have been more pronounced had we not had a backlog of $83.1 million at  the start of the fiscal year. Order levels dropped significantly in fiscal 2001  as our customers sharply reduced capital expenditures due to excess integrated  circuit inventory levels and over capacity in the semiconductor industry.  Revenues for year ended December 31, 2001 also include a $1.4 million  cancellation fee.





Our sales by product are as follows:





|                           |  | Year Ended    December 31, |    
|-------------------------- |  | -------------------------- | ---
|                           |  |                            |    
|                           |  | 2002                       |    
|                           |  |                            |    
|PVD                        |  |                            | 48 
|CVD                        |  |                            | 8  
|Etch                       |  |                            | 34 
|Spares
        and service |  |                            | 10 
|                           |  |                            |    
|Total                      |  |                            | 100
|                           |  |                            |    




Sales outside of the United States accounted for  approximately 68% and 73% of total revenues for the years ended December 31,  2001 and 2000, respectively.





License  Revenues.License revenues of $350,000 in the year ended  December 31, 2000 related to power supply technology.





Gross Margin
  on Product Sales. The gross margin on product revenues for the year ended
  December 31, 2001 was 46.7% as compared to 47.8% for the year ended December
  31, 2000. Cost of sales for the year ended December 31, 2001 included $302,000
  relating to the costs of a reduction in workforce and a non cash charge of $1.0
  million with respect to write off of inventory associated with the current downturn
  in the semiconductor business. In addition, under utilization of manufacturing
  and customer support costs negatively affected the gross margin in the year
  ended December 31, 2001. Sales of higher margin products and a receipt of fees
  for order cancellations offset, somewhat, the factors contributing to the reduced
  gross margin.





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Research  and Development Expenses. Research and development expenses  for the year ended December 31, 2001 were $9.7 million or 9.9% of total  revenues compared with $8.4 million or 7.9% of total revenues for the prior  year. The major focuses of our research and development effort was the  development of new processes in further advancing our proprietary PVD, CVD and  etch technologies as well as adding enhancements to our existing products.





Selling,  General and Administrative Expenses. Selling, general and  administrative expenses for the year ended December 31, 2001 were $21.5  million, or 22.2% of total revenues, compared to $22.6 million, or 21.1% of  total revenues, in the year ended December 31, 2000. Selling, general and  administrative expenses in the year ended December 31, 2001 include gains  arising from foreign currency adjustments of $1.1 million compared to gains of  $0.9 million recognized in the prior year.





Income  from Operations. As a result of the decrease in revenue for  the year ended December 31, 2001, income from operations decreased to  $14.2 million or 14.6% of revenue compared  with $20.2 million or 18.8% of revenue in the prior year.





Other  Income.  We earned  $681,000 in connection with the sale of property that is no longer required for  our operations.





Interest  Expense, Net.Net interest expense was $154,000 for the  year ended December 31, 2001 compared with net interest expense of $349,000 for  the year ended December 31, 2000. The decrease in net interest expense in  fiscal 2001 is due primarily to interest income received on increased cash  balances offsetting interest expense on the bank term loan. In addition,  interest cost on our 7 1/8% subordinated convertible notes decreased in 2001  compared to fiscal 2000 because certain of the notes were converted into common  stock and the remaining notes were paid in full in October 2001.





Income  Taxes.  For the year  ended December 31, 2001, we recorded a tax charge of $3.4 million compared to  $824,000 for year ended December 31, 2000 resulting in an effective income tax  rate of 23.4% and 4.2%, respectively.





For the years
  ended December 31, 2001 and 2000, we generated a significant portion of our
  consolidated pre-tax income within the United Kingdom, which has a lower statutory
  rate of 30% compared to the US federal rate of 35%. In addition to the lower
  statutory rate, we utilized United Kingdom net operating losses in 2001 and
  2000 for which no deferred tax asset had been recognized. While in fiscal 2000
  all the profits generated within the United Kingdom were offset against net
  operating losses, only a residual amount of losses was available to offset against
  the fiscal 2001 profits. See Note 6 of the Notes to the financial statements
  for a detailed reconciliation of the tax rate for 2001 and 2000.





Liquidity  and Capital Resources





At December 31, 2002, we had $42.6 million in cash and  cash equivalents, compared to $44.7 million at December 31, 2001. The primary  uses of cash in the year ended December 31, 2002 were operations, which used  $6.9 million. In addition we invested $2.0 million in property, plant and  equipment, net of retirements and repaid $8.0 million of our term loan facility  with a British bank. In April 2002, our cash and cash equivalents were  increased as a result of the sale of 1,093,348 shares of our common stock, in a  private transaction with a group of institutional shareholders. The net  proceeds that we received amounted to approximately $11.8 million. In addition,  the effect of exchange rate changes was an increase of $5.4 million on our cash  and cash equivalents at December 31, 2002.





As at December
  31, 2002, we had a term loan from a British bank with a balance outstanding
  of 11.2 million British pounds and at December 31, 2001, two term loans totaling
  16.2 million British pounds (approximately $18.2 million and $23.1 million,
  respectively, at the respective year end exchange rates). The term loan at December
  31, 2002 bears interest at the three month London Interbank Borrowing Rate (LIBOR)
  plus 1.25% per annum (payable at an annual rate of 5.29% for the three month
  period ending March 27, 2003) and also carries no prepayment penalties. Under
  the terms of this loan we are required to pay an additional five equal installments
  of approximately $2.0 million per quarter commencing January 2003 and a final
  repayment of $8.1 million in March 2004.





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The loan facility
  includes a financial covenant that we maintain the ratio of net borrowings to
  net worth at less than 0.5:1.0.  In addition,  we must maintain net
  interest cost at below 10% of profit before interest and taxes.  For the
  six month period ending June 30, 2003, the net interest cost covenant does not
  apply, and we will be allowed to incur net interest of 250,000 British pounds
  (approximately $405,000), but we must comply with the net interest cost covenant
  for the six month period ending December 31, 2003. If we incur interest expense
  and revenues do not increase in 2003 or costs are not reduced, we may not be
  in compliance with this covenant and there can be no assurance that the bank
  will grant us an additional waiver. The loan in question, however, matures in
  March 2004 and management believes that the failure to comply with the covenant
  will not result in an acceleration of the loan.





At December 31, 2002, our cash obligations and  commitments relating to our debt obligations and lease payments are as follows  ($000):





|                            |  | Less    than 1 year |       | 1 to 5    years |   | Greater    than 5 years | 
|--------------------------- |  | ------------------- | ----- | --------------- | - | ----------------------- | 
|                            |  |                     |       |                 |   |                         | 
|Bank Loan                   |  | $                   | 8,050 |                 | $ | 10,063                  | 
|Capital lease obligations   |  | $                   | 601   |                 | $ | 655                     | 
|Operating lease obligations |  | $                   | 1,777 |                 | $ | 4,646                   | 




With the exception of the above operating leases we  have no off balance sheet financing activities.





Our cash balance of $42.6 million combined with cash  generated by operations will be our primary source of liquidity. During the  next 12 months, we may use a substantial part of our cash balance to fund our  current obligations and our operations and to make scheduled principal payments  of $2.0 million per quarter with respect to our bank debt. The amount of cash  reserves that we will use to fund our operations will depend on how long the  current downturn in the semiconductor industry will last and its severity and  our ability to reduce our operating expenses..





If the downturn
  continues longer than anticipated, we will continue to rely on our cash resources
  to fund operations, but management believes that the current cash balances the
  availability of loans under the existing and new credit facilities and potential
  cost reduction efforts, will be sufficient to fund our operations for at least
  the next 12 months. In order to further strengthen our cash position, we may
  seek to raise additional debt or equity financing. There can be no assurance,
  however, that we will be able to raise any additional debt or equity financing
  on terms acceptable to us.





RISK FACTORS





You should carefully consider the following risk factors and other  information contained or incorporated by reference in this prospectus before  deciding to invest in our common stock. Investing in our common stock involves  a high degree of risk. The risks and uncertainties described below may not be  the only ones we face. If any of the following risks actually occur, our  business could be harmed and the trading price of our common stock could  decline, and you may lose all or part of your investment. Please see the  Special Note Regarding Forward-Looking Statements on page 2 of this Annual  Report on Form 10-K.





The semiconductor industry is experiencing a protracted and  continuing downturn, which has harmed and may continue to harm our sales and  profitability.





We sell our
  products to the semiconductor industry, which is subject to sudden variations
  in product supply and demand. The industry is experiencing a protracted and
  continuing downturn at this time, the length and severity of which is difficult
  to estimate, but the downturn has significantly harmed our sales and may continue for the
  remainder of 2003, but  management does not know when
  conditions in the industry may improve. Even after the current downturn ends
  there can be no assurance that orders and sales will return to historical levels.





Generally, the timing, length and severity of the  cycles in the semiconductor industry are difficult to predict. Semiconductor  manufacturers may contribute to these cycles by misinterpreting conditions in  the industry and over- or under-investing in semiconductor manufacturing  capacity and equipment. We have little ability to anticipate or respond  effectively to these industry cycles.





Downturns in the semiconductor industry often occur in  connection with, or anticipation of, maturing product cycles for both  semiconductor companies and their customers and declines in general economic  conditions.





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Industry downturns
  have been characterized by reduced demand for semiconductor devices and equipment,
  production over-capacity and accelerated declines in average selling prices.
  During a period of declining demand, to maintain our profitability, we must
  be able to quickly and effectively reduce expenses and motivate and retain key
  employees. Many of our expenses are fixed and our ability to reduce other expenses
  in response to any downturn in the semiconductor industry is limited by our
  need for continued investment in engineering and research and development and
  extensive ongoing customer service and support requirements.





In addition, the long lead time for production and  delivery of our products, and the possibility of customer order cancellations,  creates a risk that we may incur expenditures or purchase inventories for  products which we cannot sell.





At the time the current downturn ends, we may not be  in a position to meet our customers needs. Industry upturns have been  characterized by abrupt increases in demand for semiconductor devices and  equipment and production under-capacity. During a period of increasing demand  and rapid growth, we must be able to quickly hire, train and assimilate a  sufficient number of qualified personnel, particularly engineers, and obtain  sufficient components in order to increase production to meet customer demand.  If we are unable to increase production on a timely basis in times of increased  demand some of our existing or potential customers could place orders with our  competitors and, as a result we may not be able to fully benefit from any  industry upturn.





We will not be able to compete effectively if we fail to  address the rapid technological change in the semiconductor industry.





The semiconductor industry and the semiconductor  equipment industry are subject to rapid technological change and frequent introductions  of enhancements to existing products, and if we are unable to develop and  incorporate new technologies in our products, we will be unable to compete  effectively and our business will be materially and adversely affected.  Technological trends have had and will continue to have a significant impact on  our business. Our results of operations and ability to remain competitive are  largely based upon our ability to accurately anticipate customer and market  requirements. Accordingly, we may be required to maintain a relatively high  level of research and development spending, even at time of declining sales and  profitability, in order to maintain our competitive position.





Our success in developing, introducing and selling new  and enhanced products depends upon a variety of factors, including:





| |  | appropriate technology and product selection;                                  
| | - | -------------------------------------------------------------------------------
| |   |                                                                                
| |  | timely and efficient completion of product design    and development;          
| |   |                                                                                
| |  | timely and efficient implementation of manufacturing    and assembly processes;
| |   |                                                                                
| |  | effective sales and marketing;                                                 
| |   |                                                                                
| |  | product performance in the field; and                                          
| |   |                                                                                
| |  | product support and service.                                                   




We may not be able to accurately forecast or respond  to commercial and technical trends in the semiconductor industry or respond to  specific product announcements by our competitors. Our competitors may be  developing technologies and products that are more effective or that achieve  more widespread acceptance. In addition, we may incur substantial costs to  ensure the functionality and reliability of our current and future products. If  our products are unreliable or do not meet our customers expectations, then  reduced orders, higher manufacturing costs, delays in collecting accounts  receivable or additional service and warranty expense could result. We may also  experience delays and technical and manufacturing difficulties in future  introductions or volume production of new systems or enhancements. Significant  delays can occur between a products introduction and the commencement of  volume production of that
product. Any of these events could negatively affect  our ability to generate the return we intend to achieve on our investments in  these new products.





We expect the
  semiconductor industry to migrate to the further use of copper and we will need
  to continue to adapt our products for use with copper and copper processes.
  If we fail to make our products compatible with copper and copper processes
  at the time our competitors offer copper compatible products, our revenues and
  market share will be negatively affected.





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The semiconductor industry also has historically moved  to larger diameter wafers requiring new equipment as a strategy to reduce  manufacturing costs. The maximum diameter of silicon wafers used in production  is increasing from 200mm to 300mm. While we have already shipped 300mm systems  for our CVD products, we continue to develop the technology and solutions for  our PVD and etch systems. There can be no assurance, however, that we will be  able to complete the development of 300mm systems in time to meet market  demand. If our current products and our 300mm systems are not competitive or  available at the correct time, we may lose customers or fail to gain new  business from potential customers, which would have a material adverse effect  on our revenues and net earnings.





We have made significant investments in our low k technology,  but the semiconductor industry has yet to adopt our technology.





We believe that our technology for the deposition of low  k dielectrics is advanced compared to our competitors and we are dedicating  significant resource to continue to lead in this field and to achieve the  commercial sales of our low k systems. However, the physical characteristics of  low k films make the manufacturing process significantly more difficult than  with existing insulating materials and, as a result, device manufacturers have  been slow to adopt the use of low k materials and this adoption has been  delayed during the current downturn. Device manufacturers continue to find  alternative methods to manufacture devices at smaller feature sizes, and forgo  the development and use of low k materials. Also, there can be no assurance  that the industry will adopt a CVD method for the deposition of low k films.  Other technologies for which we do not manufacture equipment could also be use  for the deposition of low k films.
If we fail to continue to develop our low k  CVD solution to achieve all the specifications required by device  manufacturers, or our competitors develop competing low k solutions, then our  ability to grow our revenues and market share from these products would be  negatively affected.





Our operational results could be negatively affected by  currency fluctuations.





We are based in the United Kingdom, and most of our  operating expenses are incurred in British pounds. Our revenues, however, are  generally denominated in US dollars, and to a lesser extent in euros, and we  report our financial results in US dollars. Accordingly, if the British pound increases  in value against the US dollar, our expenses as a percentage of revenues will  increase and gross margins and net income will be negatively affected.





Our competitors have greater financial resources and greater  name recognition than we do and therefore may compete more successfully.





We face competition or potential competition from many  companies with greater resources than ours. If we are unable to compete  effectively with these companies, our market share may decline and our business  could be harmed.





Virtually all of our primary competitors in the  silicon-based semiconductor equipment market are substantially larger companies  and some of them have broader product lines than ours. They have well  established reputations in the markets in which we compete, greater experience  with high volume manufacturing, broader name recognition, substantially larger  customer bases, and substantially greater financial, technical, manufacturing  and marketing resources than we do. The dominant silicon-based semiconductor-equipment  manufacturers may determine to enter, or attempt to increase their market  share, in the compound semiconductor equipment market. In each market, we also  face potential competition from new entrants, including established  manufacturers in other segments of the semiconductor capital equipment market  who may decide to diversify into our market segments of CVD, PVD and plasma  etch.





Semiconductor manufacturers are loyal to their current  semiconductor equipment supplier, which may make it difficult for us to obtain  new customers.





We believe
  that once a semiconductor manufacturer has selected a suppliers equipment
  for a particular fabrication line, the manufacturer often will continue to rely
  on that suppliers equipment for future requirements, including new generations
  of similar products. If we are unable to sell our products to potential customers
  who currently are using other suppliers equipment, it could be difficult
  for us to increase our revenues or market share. Changing from one equipment
  supplier to another may be expensive and may require a substantial investment
  of resources by the customer. Accordingly, we may experience difficulty in achieving
  significant sales to a customer using another suppliers equipment. At
  the same time, however, we cannot assure you that our existing customers will
  continue to use our equipment in the future.





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Our products generally have long sales cycles and  implementation periods, which increase our costs of obtaining orders and reduce  the predictability of our earnings.





Our products are technologically complex. Prospective  customers generally must commit significant resources to test and evaluate our  products and to install and integrate them into larger systems. In addition,  customers often require a significant number of product presentations and  demonstrations, in some instances evaluating equipment on site, before reaching  a sufficient level of confidence in the products performance and compatibility  with their requirements to place an order. As a result, our sales process is  often subject to delays associated with lengthy approval processes that  typically accompany the design and testing of new products. The sales cycles of  our products often last for many months or even years. Longer sales cycles  require us to invest significant resources in attempting to make sales and  delay the generation of revenue. In addition, we may incur significant costs in  supporting evaluation
equipment at our customers facilities.





Long sales cycles also subject us to other risks,  including customers budgetary constraints, internal acceptance reviews and  cancellations. In addition, orders expected in one quarter could shift to  another because of the timing of customers purchase decisions. The time  required for our customers to incorporate our products into their manufacturing  processes can vary significantly with the needs of our customers and generally  exceeds several months, which further complicates our planning processes and reduces  the predictability of our operating results.





We depend upon sole suppliers for certain key components.





We depend on a number of sole suppliers for key  components used in the manufacture of our products. If we are unable to obtain  timely delivery of sufficient quantities of these components, we would be  unable to manufacture our products to meet customer demand, unless we are able  to locate replacement components. Most significantly, our Sigma®fxP,  Planar fxP  and Omega fxP  systems are designed around an automation module supplied by Brooks Automation.  Due to the high cost of these modules we keep very few in inventory. If Brooks  Automation fails to deliver the component on a timely basis, delivery of our  Sigma®fxP, Planar fxP and Omega fxP systems will be delayed  and sales may be lost. If Brooks Automation is unable to deliver any such  modules for a prolonged period of time, we will have to
redesign our Sigma®fxP  and Planar fxP  systems so that we may utilize other wafer transport systems. There can be no  assurance that we will be able to do so, or that customers will adopt the  redesigned systems.





Our final assembly and testing is concentrated in one  facility.





Our final assembly and testing activity is  concentrated in our facility in Newport, United Kingdom. We have no alternative  facilities to allow for continued production if we are required to cease  production in our facility, as a result of a fire, natural disaster or  otherwise. In such event, we will be unable to produce any products until the  facility is replaced. Any such interruption in our manufacturing schedule could  cause us to lose sales and customers.





If we are unable to hire and retain a sufficient number of  qualified personnel, our ability to manage growth will be negatively affected.





Our business and future operating results depend in  part upon our ability to attract and retain qualified management, technical,  sales and support personnel for our operations on a worldwide basis.  Competition for qualified personnel is intense, and we cannot guarantee that we  will be able to continue to attract and retain qualified personnel. Our  operations could be negatively affected if we lose key executives or employees  or are unable to attract and retain skilled executives and employees as needed.





Our ability to compete could be jeopardized if we are unable  to protect our intellectual property rights from challenges by third parties.





Our success and ability to compete depend in large  part upon protecting our proprietary technology. We rely on a combination of  patent, trade secret, copyright and trademark laws, non-disclosure and other  contractual agreements and technical measures to protect our proprietary  rights.





There can be
  no assurance that patents will be issued on our pending patent applications
  or that competitors will not be able to ascertain legitimately proprietary information
  embedded in our products that is not covered by patent or copyright. In such
  case, we may be precluded from preventing the competitor from making use of
  such information. In addition, should we wish to assert our patent rights against
  a particular competitors product, there can be no assurance that any claim
  in any of our patents will be sufficiently broad nor, if sufficiently broad,
  any assurance that our patent will not be challenged, invalidated or circumvented,
  or that we will have sufficient resources to prosecute our rights.





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Claims or litigation regarding intellectual property rights  could seriously harm our business or require us to incur significant costs.





In recent years, there has been significant litigation  in the United States in the semiconductor equipment industry involving patents  and other intellectual property rights. There can be no assurance that  infringement claims will not be asserted against us in the future nor that, if  such claims are made, we would be able to defend against such claims  successfully or, if necessary, obtain licenses on reasonable terms.





Any claim that our products infringe proprietary  rights of others would force us to defend ourselves and possibly our customers  against the alleged infringement. These claims and any resulting lawsuit, if  successful, could subject us to significant liability for damages and  invalidation of our proprietary rights. These lawsuits, regardless of their  outcome, would likely be time-consuming and expensive to resolve and would  divert management time and attention. Any potential intellectual property  litigation could force us to do one or more of the following:





| |  | lose or forfeit our proprietary rights;                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                             
| |  | stop manufacturing or selling our products that    incorporate the challenged intellectual property;                                                                                                                                        
| |   |                                                                                                                                                                                                                                             
| |  | obtain from the owner of the infringed intellectual    property right a license to sell or use the relevant technology, which    license may not be available on reasonable terms or at all and may involve    significant royalty payments;
| |   |                                                                                                                                                                                                                                             
| |  | pay damages, including treble damages and attorneys    fees in some circumstances; or                                                                                                                                                      
| |   |                                                                                                                                                                                                                                             
| |  | redesign those products that use the challenged    intellectual property.                                                                                                                                                                   




If we are forced to take any of the foregoing actions,  our business could be severely harmed.





Our sales are characterized by low volume sales of high cost  systems and we derive a significant percentage of our revenue from sales to a  small number of customers. If we are not able to retain these customers, or if  these customers reschedule, reduce or cancel orders, our revenues will be reduced  and our financial results will suffer.





To date our product sales in most fiscal years have  been highly concentrated with a small number of customers. We may not be able  to retain our key customers or these customers may cancel purchase orders or  reschedule or decrease their level of purchases from us. Any substantial  decrease or delay in sales to one or more of our key customers could harm our  sales and financial results. There can be no assurance that these customers  will continue to purchase systems and technology from us at current levels, or  at all. Sales to these large customers have varied significantly from year to  year and will continue to fluctuate in the future. These sales also may  fluctuate significantly from quarter to quarter.





Our operations are subject to health and safety and  environmental laws that may expose us to liabilities for noncompliance.





We are subject to a variety of governmental  regulations relating to the use, storage, discharge, handling, manufacture and  disposal of all materials present at, or our output from, our facilities,  including the toxic or other hazardous chemical by-products of our  manufacturing processes. Environmental claims against us or our failure to  comply with any present or future regulations could result in:





| |  | the assessment of damages or imposition of fines    against us;
| | - | ---------------------------------------------------------------
| |   |                                                                
| |  | the suspension of production of our products; or               
| |   |                                                                
| |  | the cessation of our operations.                               




New regulations
  could require us to purchase costly equipment or to incur other significant
  expenses. Our failure to control the use or adequately restrict the discharge
  of hazardous substances could subject us to future liabilities, which could
  negatively affect our earnings and financial position.





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Any acquisitions we may make could disrupt our business and  severely harm our financial condition.





From time to time, we may consider investments in  complementary companies, products or technologies. While we have no current  agreements or specific plans to do so, we may acquire businesses, products or  technologies in the future. In the event of any future acquisitions, we could:





| |  | issue stock that would dilute our current    stockholders percentage ownership;         
| | - | -----------------------------------------------------------------------------------------
| |   |                                                                                          
| |  | incur debt;                                                                              
| |   |                                                                                          
| |  | assume liabilities;                                                                      
| |   |                                                                                          
| |  | incur amortization expenses related to tangible    assets and other intangible assets; or
| |   |                                                                                          
| |  | incur large and immediate accounting write-offs.                                         




Our operation of any acquired business will also  involve numerous risks, including:





| |  | problems integrating the purchased operations,    technologies or products;                                 
| | - | ------------------------------------------------------------------------------------------------------------
| |   |                                                                                                             
| |  | unanticipated costs and liabilities for which we are    not able to obtain indemnification from the sellers;
| |   |                                                                                                             
| |  | diversion of managements attention from our core    business;                                              
| |   |                                                                                                             
| |  | adverse effects on existing business relationships    with customers;                                       
| |   |                                                                                                             
| |  | risks associated with entering markets in which we    have no or limited prior experience; and              
| |   |                                                                                                             
| |  | potential loss of key employees, particularly those    of the purchased organizations.                      




ITEM  7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET  RISK





Our earnings and cash flow are subject to fluctuations  in foreign currency exchange rates. Significant factors affecting this risk  include our manufacturing, research and development and administrative cost  base, which are predominately incurred in British pounds, and product sales  outside the United States, which may be expressed in currencies other than the  United States dollar. We constantly monitor currency exchange rates and match  currency availability and requirements whenever possible. We may from time to  time enter into forward foreign exchange transactions in order to minimize risk  from firm future positions arising from trading. As at December 31, 2002 and  December 31, 2001 we did not have any open forward currency transactions.





Based upon budgeted income and expenditures, a  hypothetical increase of 10% in the value of the British pound against all  other currencies in the year ended December 31, 2003 would have no material effect  on revenues, which are primarily expressed in United States dollars and would  increase operating costs and reduce cash flow by approximately $5.3 million.  The same increase in the value of the British pound would increase the value of  the net assets of we expressed in United States dollars by approximately $5.4  million. We have also received orders for revenue that are denominated in  euros, therefore an increase in the value of the euro in relation to the United  States dollar would effect the reported value of revenue. The effect of the  hypothetical change in exchange rates ignores the effect this movement may have  on other variables including competitive risk. If it were possible to quantify  this impact, the results could
well be different from the sensitivity effects  shown above. In addition, it is unlikely that all currencies would uniformly  strengthen or weaken relative to the British pound. In reality, some currencies  may weaken while others may strengthen.





ITEM  8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





See the Index included at Item 15. Exhibits and  Financial Statements Schedules and Reports on Form 8-K.





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ITEM  9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE





None.





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PART III





ITEM  10.    DIRECTORS AND EXECUTIVE OFFICERS.





The information
  required by this item is included under Proposal No. 1: Election of Directors,
  Other Information  Executive Officers and Compliance
  with Section 16(a) of the Exchange Act in our Definitive Proxy Statement
  to be filed in connection with our 2003 Annual Meeting of Stockholders and is
  incorporated herein by reference.





ITEM  11.    EXECUTIVE COMPENSATION.





The information required by this item is included  under Other Information  Executive Compensation in our Definitive Proxy  Statement to be filed in connection with our 2003 Annual Meeting of  Stockholders and is incorporated herein by reference.





ITEM  12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT.





The information required by this item is included  under Other Information  Security Ownership of Certain Beneficial Owners and  Management in our Definitive Proxy Statement to be filed in connection with  our 2003 Annual Meeting of Shareholders and is incorporated herein by  reference.





ITEM  13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





The information required by this item is included  under Transactions with Related Parties in our Definitive Proxy Statement to  be filed in connection with our 2003 Annual Meeting of Stockholders and is  incorporated herein by reference.





ITEM  14.    CONTROLS AND PROCEDURES





An evaluation was performed under the supervision and  with the participation of our management team, including the Chief Executive  Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of  the design and operation of our disclosure controls and procedures within 90  days of this report. Based on that evaluation, our management, including the  CEO and CFO, have concluded that our disclosure controls and procedures were  effective as of December 31, 2002.





There were no significant changes in our internal  controls or in other factors that could significantly affect internal controls  subsequent to their most recent evaluation.





It should be noted that any system of controls,  however well designed and operated, can provide only reasonable, and not  absolute, assurance that the objectives of the system are met. In addition, the  design of any control system is based in part on likely future events. Because  of these and other inherent limitations of control systems, there can be no  assurance that any design will succeed in achieving its stated goals under all  potential future conditions, regardless of how remote.





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PART IV





ITEM  15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS  ON FORM 8-K





(a) The following documents are filed as part  of this annual report on form 10K





(1) Financial Statements





Report of Independent Auditors


Consolidated Balance Sheets--December 31, 2002, and 2001.


Consolidated Statements of Operations for the years ended December 31,  2002, 2001and 2000


Consolidated Statements of Stockholders Equity for the years ended  December 31, 2002, 2001 and 2000


Consolidated Statements of Cash Flows for the years ended December 31,  2002, 2001 and 2000


Notes to Consolidated Financial Statements





(2) Financial Statement Schedules





Schedule II  Valuation and Qualifying Accounts.





All other schedules for which provision is made in the applicable  accounting requirements of the Securities and Exchange Commission are not  required under the related instructions or are not applicable and therefore  have been omitted.





|(3) | List of Exhibits                                                                                                                                                                                                                                                                                                    
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                     
|2.1 | Share Purchase Agreement, dated July 17, 1996 (the    Share Purchase Agreement), among the Company, Electrotech and the    shareholders of Electrotech. (Previously filed as an exhibit to the Companys    Current Report on Form 8-K on November 27, 1996, and incorporated by    reference herein.)            
|    |                                                                                                                                                                                                                                                                                                                     
|2.2 | Amendment No. 1 to the Share Purchase Agreement    dated September 9, 1996. (Previously filed as an exhibit to the Companys    Current Report on Form 8-K on November 27, 1996, and incorporated by    reference herein.)                                                                                          
|    |                                                                                                                                                                                                                                                                                                                     
|2.3 | Amendment No. 2 to the Share Purchase Agreement    dated October 16, 1996. (Previously filed as an exhibit to the Companys    Current Report on Form 8-K on November 27, 1996, and incorporated by    reference herein.)                                                                                           
|    |                                                                                                                                                                                                                                                                                                                     
|2.4 | Amendment No. 3 to the Share Purchase Agreement    dated November 13, 1996. (Previously filed as an exhibit to the Companys    Current Report on Form 8-K on November 27, 1996, and incorporated by    reference herein.)                                                                                          
|    |                                                                                                                                                                                                                                                                                                                     
|2.5 | Agreement and Plan of Merger, between Trikon    Technologies, Inc., a Delaware corporation, and Trikon Technologies, Inc., a    California corporation. (Previously filed as Exhibit C to the Registrants    Proxy Statement for the 2002 Annual Meeting of Stockholders, and incorporated    herein by reference.)
|    |                                                                                                                                                                                                                                                                                                                     
|3.1 | Certificate of Incorporation of Trikon Technologies,    Inc., a Delaware corporation. (Previously filed as Exhibit D to the    Registrants Proxy Statement for the 2002 Annual Meeting of Stockholders, and    incorporated herein by reference.)                                                                  
|    |                                                                                                                                                                                                                                                                                                                     
|3.2 | By-laws of Trikon Technologies, Inc., a Delaware    corporation. (Previously filed as Exhibit E to the Registrants Proxy    Statement for the 2002 Annual Meeting of Stockholders, and incorporated    herein by reference.)                                                                                       
|    |                                                                                                                                                                                                                                                                                                                     
|4.1 | Common Stock Purchase Warrant, dated May 23, 2001,    granted by Trikon Technologies, Inc. to Spinner Global Technology Fund, Ltd.    (Previously filed as an exhibit to the Companys Current Report on Form 8-K    dated May 24, 2001, and incorporated by reference herein.)                                     




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|10.1*  | 1991 Stock Option Plan of the Company, as amended to    date. (Previously file as an exhibit to the Companys Proxy Statement for the    2002 Annual Meeting of Stockholders, and incorporated herein by reference.)                                                                                                               
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                    
|10.2*  | Employment Agreement, dated as of
        November 15, 1996, between that Company and Nigel Wheeler. (Previously
        filed as an exhibit to the Companys Current Report on Form 8-K on
        November 27, 1996, and incorporated by reference herein.)                                                                      
|       |                                                                                                                                                                                                                                                                                                                                    
|10.3   | Registration Agreement dated as of November 15, 1996    between the Company and Christopher D. Dobson. (Previously filed as an    exhibit to the Companys Current Report on Form 8-K on November 27, 1996, and    incorporated by reference herein.)                                                                              
|       |                                                                                                                                                                                                                                                                                                                                    
|10.4   | International Technology License and Sales Agreement    between the Company and Anelva Corporation, dated February 7, 1992.    (Previously filed as an exhibit to Amendment No. 3 to the Companys    Registration Statement on Form S-1, and incorporated herein by reference.)                                                  
|       |                                                                                                                                                                                                                                                                                                                                    
|10.5   | Lease dated July 5, 1985 concerning the Companys    facilities at Newport, Gwent, United Kingdom, as assigned to Electrotech    Limited effective January 19, 1995. (Previously filed as an exhibit to the    Companys Annual Report on Form 10-K for the year ended December 31, 1996,    and incorporated by reference herein.)
|       |                                                                                                                                                                                                                                                                                                                                    
|10.6   | M0RI(TM) Source Technology License Agreement between    the Company and Applied Materials. (Previously filed as an exhibit to the    Companys Quarterly Report on Form 10-Q for the quarter ended September 30,    1997, and incorporated herein by reference.)                                                                  
|       |                                                                                                                                                                                                                                                                                                                                    
|10.7   | FORCEFILL(TM) Technology License Agreement between    Trikon Equipment Limited and Applied Materials. (Previously filed as an    exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended    September 30, 1997, and incorporated herein by reference.)                                                       
|       |                                                                                                                                                                                                                                                                                                                                    
|10.8   | FORCEFILL(TM) Technology License Agreement between    Trikon Technologies Limited and Applied Materials. (Previously filed as an    exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended    September 30, 1997, and incorporated herein by reference.)                                                    
|       |                                                                                                                                                                                                                                                                                                                                    
|10.9   | M0RI(TM) Source Technology License Agreement between    the Company and Lam Research Corporation. (Previously filed as an exhibit to    the Companys Quarterly Report on Form 10-Q for the quarter ended September    30, 1997, and incorporated herein by reference.)                                                           
|       |                                                                                                                                                                                                                                                                                                                                    
|10.10* | Letter Agreement, dated as of May 14, 1998, between    Christopher D. Dobson and the Company. (Previously filed as an exhibit to the    Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 1998,    and incorporated herein by reference.)                                                                     
|       |                                                                                                                                                                                                                                                                                                                                    
|10.11* | 1998 Directors Stock Option Plan, as amended to    date. (Previously filed as Exhibit B to the Registrants Proxy Statement for    the 2002 Annual Meeting of Stockholders, and incorporated herein by    reference).                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                    
|10.12  | Term Loan Agreement, dated March 6, 2001, between    the Company and Lloyds TSB Bank plc. (Previously filed as an exhibit to the    Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2001,    and incorporated herein by reference.)                                                                        
|       |                                                                                                                                                                                                                                                                                                                                    
|10.13  | Amendment to Term Loan Agreement, dated October    8,  2001, between the Company and    Lloyds TSB Bank plc. (Previously filed as an exhibit to the Companys annual    Report on Form 10-K for the year ended December 31, 2001, and incorporated    herein by reference.)                                                        
|       |                                                                                                                                                                                                                                                                                                                                    
|10.14  | Form of Stock Purchase Agreement and Schedule of    Investors dated April 17, 2002 (previously filed as an exhibit to current    report on form 8K filed April 19, 2002)                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                    
|21¶    | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                    
|23.1¶  | Consent of Ernst & Young LLP                                                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                    
|24.1** | Power of Attorney                                                                                                                                                                                                                                                                                                                  




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|99.1¶ | Certification of A. Nigel Wheeler,
        Chief Executive Officer, President and Chief Operating Officer of Trikon
        Technologies, Inc., dated March 25, 2003,  in accordance with 18
        U.S.C. Section 1350 (as adopted pursuant to section 906 of the Sarbanes-Oxley
        Act of 2002).
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                         
|99.2¶ | Certification of William J. Chappell,
        Senior Vice President and Chief Financial Officer of Trikon Technologies,
        Inc., dated March 25, 2003, in accordance with 18 U.S.C. Section 1350
        (as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002).                   
|      |                                                                                                                                                                                                                                                                                                         
|*     | Indicates a management    contract or compensatory plan or arrangement, as required by Item 14(a)3.                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                         
|**    | Set forth in the signature    page hereto.                                                                                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                         
|     | Certain portions of this    exhibit have been omitted from the copy filed and are subject to an order    granting confidential treatment with respect thereto.                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                         
|¶     | Filed herewith.                                                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                         




|(b) | Reports on Form 8-K
|--- | -------------------




No reports on Form 8-K were filed during the last quarter  of fiscal 2002.





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SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of  the Securities Exchange Act of 1934, the registrant has duly caused this report  to be signed on its behalf by the undersigned, thereunto duly authorized.





|Date:  March    25, 2003 |                                                                  
|------------------------ | -----------------------------------------------------------------
|                         |                                                                  
|                         | TRIKON TECHNOLOGIES, INC.                                        
|                         |                                                                  
|                         | By: /s/ NIGEL WHEELER                                            
|                         | Nigel Wheeler                                                    
|                         | Chief    Executive Officer, President and Chief Operating Officer
|                         |                                                                  
|                         | By: /s/ WILLIAM  J. CHAPPELL                                     
|                         | William J. Chappell                                              
|                         | Senior    Vice President and Chief Financial Officer             




POWER OF  ATTORNEY





KNOW ALL PERSONS BY THESE PRESENTS, that each person  whose signature appears below constitutes and appoints Nigel Wheeler and William  J. Chappell, and each of them with all power to act without the other, his true  and lawful attorneys-in-fact and agents, with full power of substitution and  resubstitution, to sign any and all amendments (including post-effective  amendments) to this Annual Report on Form 10-K and to file the same, with all  exhibits thereto and other documents in connection therewith, with the  Securities and Exchange Commission, granting unto said attorneys-in-fact and  agents, and each of them, full power and authority to do and perform each and  every act and thing requisite and necessary to be done in connection therewith,  as fully to all intents and purposes as he might or could do in person, hereby  ratifying and confirming all that said attorneys-in-fact and agents, or their  substitute or substitutes, or
any of them, shall do or cause to be done by  virtue hereof.





Pursuant to the requirements of the Securities  Exchange Act of 1934, this report has been signed below by the following  persons on behalf of the Registrant and in the capacities and on the dates  indicated.





|Signature                   |  | Title                                                                                                        |  | Date          
|--------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------------
|                            |  |                                                                                                              |  |               
|/s/ NIGEL WHEELER           |  | Chief Executive Officer, President and Chief    Operating Officer and Director (Principal Executive Officer) |  | March 25, 2003
|Nigel Wheeler               |  |                                                                                                              |  |               
|                            |  |                                                                                                              |  |               
|/s/ WILLIAM J. CHAPPELL     |  | Senior Vice President, Chief Financial Officer and    Secretary (Principal Financial and Accounting          |  | March 25, 2003
|William Chappell            |  | Officer)                                                                                                     |  |               
|                            |  |                                                                                                              |  |               
|/s/ CHRISTOPHER D. DOBSON   |  | Chairman of the Board, Director                                                                              |  | March 25, 2003
|Christopher D. Dobson       |  |                                                                                                              |  |               
|                            |  |                                                                                                              |  |               
|/s/ RICHARD
        M. CONN |  | Director                                                                                                     |  | March 25, 2003
|Richard M. Conn             |  |                                                                                                              |  |               
|                            |  |                                                                                                              |  |               
|/s/ STEPHEN N. WERTHEIMER   |  | Director                                                                                                     |  | March 25, 2003
|Stephen N. Wertheimer       |  |                                                                                                              |  |               
|                            |  |                                                                                                              |  |               
|/s/ROBERT R. ANDERSON       |  | Director                                                                                                     |  | March 25, 2003
|Robert R. Anderson          |  |                                                                                                              |  |               




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CERTIFICATIONS





I, A Nigel Wheeler, certify that:





1. I have reviewed this annual report on Form 10-K of Trikon  Technologies, Inc.;





2. Based on my knowledge, this annual report does not contain any  untrue statement of a material fact or omit to state a material fact necessary  to make the statements made, in light of the circumstances under which such  statements were made, not misleading with respect to the period covered by this  annual report;





3. Based on my knowledge, the financial statements, and other financial  information included in this annual report, fairly present in all material  respects the financial condition, results of operations and cash flows of the  registrant as of, and for, the periods presented in this annual report;





4. The registrants other certifying officers and I are responsible for  establishing and maintaining disclosure controls and procedures (as defined in  Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





a) designed such disclosure controls and procedures to ensure that  material information relating to the registrant, including its consolidated  subsidiaries, is made known to us by others within those entities, particularly  during the period in which this annual report is being prepared;





b) evaluated the effectiveness of the registrants disclosure controls  and procedures as of a date within 90 days prior to the filing date of this  annual report (the Evaluation Date); and





c) presented in this annual report our conclusions about the  effectiveness of the disclosure controls and procedures based on our evaluation  as of the Evaluation Date;





5. The registrants other certifying officers and I have disclosed,  based on our most recent evaluation, to the registrants auditors and the audit  committee of registrants board of directors (or persons performing the  equivalent function):





a) all significant deficiencies in the design or operation of internal  controls which could adversely affect the registrants ability to record,  process, summarize and report financial data and have identified for the  registrants auditors any material weaknesses in internal controls; and





b) any fraud, whether or not material, that involves management or  other employees who have a significant role in the registrants internal  controls; and





6. The registrants other certifying officers and I have indicated in  this annual report whether or not there were significant changes in internal  controls or in other factors that could significantly affect internal controls  subsequent to the date of our most recent evaluation, including any corrective  actions with regard to significant deficiencies and material weaknesses.





Date: March 25, 2003








/s/ A NIGEL WHEELER


Chief Executive Officer, President  and Chief Operating Officer





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CERTIFICATIONS (Continued)





I, William John Chappell, certify that:





1. I have reviewed this annual report on Form 10-K of Trikon  technologies, Inc.;





2. Based on my knowledge, this annual report does not contain any untrue  statement of a material fact or omit to state a material fact necessary to make  the statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this annual  report;





3. Based on my knowledge, the financial statements, and other financial  information included in this annual report, fairly present in all material  respects the financial condition, results of operations and cash flows of the  registrant as of, and for, the periods presented in this annual report;





4. The registrants other certifying officers and I are responsible for  establishing and maintaining disclosure controls and procedures (as defined in  Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





a) designed such disclosure controls and procedures to ensure that  material information relating to the registrant, including its consolidated  subsidiaries, is made known to us by others within those entities, particularly  during the period in which this annual report is being prepared;





b) evaluated the effectiveness of the registrants disclosure controls  and procedures as of a date within 90 days prior to the filing date of this  annual report (the Evaluation Date); and





c) presented in this annual report our conclusions about the  effectiveness of the disclosure controls and procedures based on our evaluation  as of the Evaluation Date;





5. The registrants other certifying officers and I have disclosed,  based on our most recent evaluation, to the registrants auditors and the audit  committee of registrants board of directors (or persons performing the  equivalent function):





a) all significant deficiencies in the design or operation of internal  controls which could adversely affect the registrants ability to record,  process, summarize and report financial data and have identified for the  registrants auditors any material weaknesses in internal controls; and





b) any fraud, whether or not material, that involves management or  other employees who have a significant role in the registrants internal  controls; and





6. The registrants other certifying officers and I have indicated in  this annual report whether or not there were significant changes in internal  controls or in other factors that could significantly affect internal controls  subsequent to the date of our most recent evaluation, including any corrective  actions with regard to significant deficiencies and material weaknesses.





Date: March 25, 2003





/s/ WILLIAM J CHAPPELL


William J Chappell


Senior Vice President  and Chief Financial Officer





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Index to  Financial Statements





|                                                                                                                     | PAGE
|-------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                     |     
|Report of Independent Auditors                                                                                       | F-1 
|Consolidated Balance Sheets as at    December 31, 2002, and 2001.                                                    | F-2 
|Consolidated Statements of Operations    for the years ended December 31, 2002, 2001 and 2000                        | F-3 
|Consolidated Statements
        of Stockholders Equity for the years ended December 31, 2002, 2001
        and 2000 | F-4 
|Consolidated Statements of Cash Flows    for the years ended December 31, 2002, 2001 and 2000                        | F-5 
|Notes to Consolidated Financial    Statements                                                                        | F-6 




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REPORT OF INDEPENDENT AUDITORS





|To: | The Stockholders and the Board of Directors of
|--- | ----------------------------------------------
|    | Trikon Technologies, Inc.                     




We have audited
  the accompanying consolidated balance sheets of Trikon Technologies, Inc. as
  of December 31, 2002 and 2001 and the related consolidated statements of operations,
  stockholders equity and cash flows for each of the three years in the
  period ended December 31, 2002. Our audits also included the financial statement
  schedule listed in the Index at Item 15(a). These financial statements and schedule
  are the responsibility of the Companys management. Our responsibility
  is to express an opinion on these financial statements and schedule based on
  our audits.





We conducted our audits in accordance with auditing  standards generally accepted in the United States. Those standards require that  we plan and perform the audit to obtain reasonable assurance about whether the  financial statements are free of material misstatement. An audit includes  examining, on a test basis, evidence supporting the amounts and disclosures in  the financial statements. An audit also includes assessing the accounting  principles used and significant estimates made by management, as well as  evaluating the overall financial statement presentation. We believe that our  audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above  present fairly, in all material respects, the consolidated financial position  of Trikon Technologies, Inc. at December 31, 2002 and 2001, and the  consolidated results of its operations and its consolidated cash flows for each  of the three years in the period ended December 31, 2002, in conformity with  accounting principles generally accepted in the United States. Also, in our  opinion, the related financial statement schedule, when considered in relation  to the basic financial statements taken as a whole, presents fairly in all  material respects the information set forth therein.





|                                           | /s/ ERNST & YOUNG LLP
|------------------------------------------ | ---------------------
|                                           | Bristol, England     
|                                           |                      
|Ernst & Young LLP
        January 17, 2003 |                      




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TRIKON TECHNOLOGIES, INC.





CONSOLIDATED BALANCE SHEETS  (In thousands, except for share data)





|                                                                                                            |  | December    31, |         
|----------------------------------------------------------------------------------------------------------- |  | --------------- | --------
|                                                                                                            |  |                 |         
|                                                                                                            |  | 2002            |         
|                                                                                                            |  |                 |         
|Assets                                                                                                      |  |                 |         
|Current assets                                                                                              |  |                 |         
|Cash and cash equivalents                                                                                   |  | $               | 42,557  
|Accounts receivable, less allowances of $149 and $53 at December 31,    2002 and 2001, respectively         |  |                 | 8,948   
|Inventories                                                                                                 |  |                 | 20,486  
|Prepaid and other current assets                                                                            |  |                 | 2,671   
|                                                                                                            |  |                 |         
|Total current assets                                                                                        |  |                 | 74,662  
|Property,    plant and equipment, net                                                                       |  |                 | 19,636  
|Demonstration    systems, net                                                                               |  |                 | 2,669   
|Other assets                                                                                                |  |                 | 221     
|                                                                                                            |  |                 |         
|Total assets                                                                                                |  | $               | 97,188  
|                                                                                                            |  |                 |         
|Liabilities and stockholders equity                                                                        |  |                 |         
|Current liabilities:                                                                                        |  |                 |         
|Accounts payable                                                                                            |  |                 | 3,595   
|Accrued expenses                                                                                            |  |                 | 915     
|Warranty and related expenses                                                                               |  |                 | 1,426   
|Current portion of long-term debt and capital lease obligations                                             |  |                 | 8,651   
|Deferred revenue                                                                                            |  |                 | 1,169   
|Other current liabilities                                                                                   |  |                 | 3,862   
|                                                                                                            |  |                 |         
|Total current liabilities                                                                                   |  |                 | 19,618  
|Long-term    debt and capital lease obligations, less current portion                                       |  |                 | 10,717  
|Pension    obligations                                                                                      |  |                 | 5,313   
|Other long    term liabilities                                                                              |  |                 | 1,020   
|                                                                                                            |  |                 |         
|Total liabilities                                                                                           |  | $               | 36,668  
|Commitments
        and contingencies (Note 8)                                                              |  |                 |         
|Stockholders
        equity:                                                                               |  |                 |         
|Preferred
        Stock                                                                                     |  |                 |         
|Authorized shares -- 20,000,000                                                                             |  |                 |         
|Series H Preferred Stock, no par value, $10 per share liquidation    preference                             |  |                 |         
|Issued
        and outstanding  none at December 31, 2002 and 2001                                         |  |                 |        
|Common    Stock, no par value                                                                               |  |                 |         
|Authorized shares  50,000,000                                                                              |  |                 |         
|Issued
        and outstanding 14,025,702 at December 31, 2002 and 12,855,279 at
        December 31, 2001 |  |                 | 254,536 
|Accumulated
        other comprehensive loss                                                                |  |                 | (8,400  
|Deferred    compensation                                                                                    |  |                 | (569    
|Accumulated    deficit                                                                                      |  |                 | (185,047
|                                                                                                            |  |                 |         
|Total    stockholders equity                                                                               |  |                 | 60,520  
|                                                                                                            |  |                 |         
|Total    liabilities and stockholders equity                                                               |  | $               | 97,188  
|                                                                                                            |  |                 |         




See accompanying notes to the consolidated financial statements.





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TRIKON TECHNOLOGIES, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except for per share data)





|                                                                                                                     |  | Year
        Ended December 31 |        
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------
|                                                                                                                     |  |                                |        
|                                                                                                                     |  | 2002                           |        
|                                                                                                                     |  |                                |        
|Revenues:                                                                                                            |  |                                |        
|Product
        sales                                                                                                |  | $                              | 32,765 
|License
        revenues                                                                                             |  |                                | 50     
|                                                                                                                     |  |                                |        
|                                                                                                                     |  | $                              | 32,815 
|                                                                                                                     |  |                                |        
|Costs
        and expenses:                                                                                          |  |                                |        
|Cost
        of goods sold                                                                                           |  |                                | 24,490 
|Research
        and development                                                                                     |  |                                | 10,700 
|Selling,
        general and administrative.                                                                         |  |                                | 19,537 
|                                                                                                                     |  |                                |        
|                                                                                                                     |  |                                | 54,727 
|                                                                                                                     |  |                                |        
|(Loss)
        income from operations                                                                                |  |                                | (21,912
|Other
        income                                                                                                 |  |                                |       
|Interest:                                                                                                            |  |                                |        
|Interest
        expense                                                                                             |  |                                | (1,197 
|Interest
        income.                                                                                             |  |                                | 1,309  
|                                                                                                                     |  |                                |        
|(Loss)
        income before income tax (benefit) charge                                                             |  |                                | (21,800
|Income
        tax (benefit) charge                                                                                  |  |                                | (2,165 
|                                                                                                                     |  |                                |        
|Net
        (loss) income before cumulative effect of change in accounting principle.                                |  |                                | (19,635
|Cumulative
        effect of change in accounting principle                                                          |  |                                |       
|                                                                                                                     |  |                                |        
|Net
        (loss) income.                                                                                           |  | $                              | (19,635
|Preferred
        dividend                                                                                           |  |                                |       
|                                                                                                                     |  |                                |        
|Net
        (loss) income applicable to common shares.                                                               |  | $                              | (19,635
|                                                                                                                     |  |                                |        
|(Loss)
        earnings per common share data:                                                                       |  |                                |        
|Basic:                                                                                                               |  |                                |        
|(Loss)
        income applicable to common shares before cumulative effect of change
        in accounting principle |  | $                              | (1.57  
|Cumulative
        effect of change in accounting principle                                                          |  |                                |       
|                                                                                                                     |  |                                |        
|Net
        (loss) income                                                                                            |  | $                              | (1.57  
|                                                                                                                     |  |                                |        
|Diluted:                                                                                                             |  |                                |        
|(Loss)
        income applicable to common shares before cumulative effect of change
        in accounting principle |  | $                              | (1.57  
|Cumulative
        effect of change in accounting principle                                                          |  |                                |       
|                                                                                                                     |  |                                |        
|Net
        (loss) income                                                                                            |  | $                              | (1.57  
|                                                                                                                     |  |                                |        
|Average
      common shares used in the calculation                                                                  |  |                                |        
|- Basic                                                                                                              |  |                                | 12,533 
|-
        Diluted                                                                                                    |  |                                | 12,533 




See accompanying notes to the consolidated financial statements.





F-3


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TRIKON TECHNOLOGIES, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS  EQUITY


(In thousands)





|                                                  |  | Series
        H Preferred Stock |        | Common
        Stock |        | Accumulated
        Deficit |   | Accumulated
        other comprehensive
        loss |        | Deferred
        Compensation |   | Total   | 
|------------------------------------------------- |  | -------------------------------- | ------ | -------------------- | ------ | --------------------------- | - | ---------------------------------------------------- | ------ | ----------------------------- | - | ------- | 
|Shares                                            |  | Amount                           | Shares |                      | Amount
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 
|Balance
        at January 1, 2000                |  |                                  | 3,198  |                      | $      | 31,979                      |   |                                                      | 9,404  |                               | $ | 199,019 | 
|Exercises
        of employee stock options       |  |                                  |        |                      |        |                             |   |                                                      | 49     |                               |   | 44      | 
|Conversion
        of preferred stock             |  |                                  | (2,839 | )                    |        | (28,398                     | ) |                                                      | 2,008  |                               |   | 28,398  | 
|Conversion
        of convertible bond            |  |                                  |       |                      |        |                            |   |                                                      | 204    |                               |   | 2,685   | 
|Conversion
        of  accrued preferred dividend |  |                                  |       |                      |        |                            |   |                                                      | 45     |                               |   | 642     | 
|Amortization
        of restricted stock          |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Currency
        translation adjustments          |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Net
        income                                |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 
|Comprehensive
        income                      |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Preference
        dividend                       |  |                                  | 84     |                      |        | 849                         |   |                                                      |       |                               |   |        | 
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 
|Balance
        at December 31, 2000              |  |                                  | 443    |                      | $      | 4,430                       |   |                                                      | 11,710 |                               | $ | 230,788 | 
|Issuance
        of stock, net of issuance costs  |  |                                  |       |                      |        |                            |   |                                                      | 926    |                               |   | 9,970   | 
|Exercises
        of employee stock options       |  |                                  |       |                      |        |                            |   |                                                      | 71     |                               |   | 57      | 
|Conversion
        of preferred stock             |  |                                  | (186   | )                    |        | (1,863                      | ) |                                                      | 148    |                               |   | 1,910   | 
|Redemption
        of preferred stock             |  |                                  | (269   | )                    |        | (2,692                      | ) |                                                      |       |                               |   |        | 
|Amortization
        of restricted stock          |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Currency
        translation adjustments          |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Deficit
        on defined benefit plan           |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Net
        income                                |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 
|Comprehensive
        income                      |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Preference
        dividend                       |  |                                  | 12     |                      |        | 125                         |   |                                                      |       |                               |   |        | 
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 
|Balance
        at December 31, 2001              |  |                                  |       |                      |        |                            |   |                                                      | 12,855 |                               | $ | 242,725 | 
|Issuance
        of stock, net of issuance costs  |  |                                  |       |                      |        |                            |   |                                                      | 1,093  |                               |   | 11,736  | 
|Exercises
        of employee stock options       |  |                                  |       |                      |        |                            |   |                                                      | 78     |                               |   | 75      | 
|Amortization
        of restricted stock          |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Currency
        translation adjustments          |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Deficit
        on defined benefit plan           |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|Net
        loss                                  |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 
|Comprehensive
        loss                        |  |                                  |       |                      |        |                            |   |                                                      |       |                               |   |        | 
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 
|Balance
        at December 31, 2002              |  |                                  |       |                      |        |                            |   |                                                      | 14,026 |                               | $ | 254,536 | 
|                                                  |  |                                  |        |                      |        |                             |   |                                                      |        |                               |   |         | 




See accompanying notes to the consolidated financial statements.





F-4


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TRIKON TECHNOLOGIES, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands of dollars)





|                                                                                                         |  | Year Ended    December 31 |        
|-------------------------------------------------------------------------------------------------------- |  | ------------------------- | -------
|                                                                                                         |  |                           |        
|                                                                                                         |  | 2002                      |        
|                                                                                                         |  |                           |        
|Operating activities                                                                                     |  |                           |        
|Net (loss)    income.                                                                                    |  | $                         | (19,635
|Adjustments    to reconcile net (loss) income to net cash (used in) provided by operating    activities: |  |                           |        
|Depreciation and amortization of plant, equipment, leasehold    improvements, and demonstration systems  |  |                           | 5,279  
|Gain on sale of property plant and equipment.                                                            |  |                           | (6     
|Amortization of financing costs                                                                          |  |                           |       
|Amortization of deferred compensation                                                                    |  |                           | 1,517  
|Net recognized pension fund obligation                                                                   |  |                           |        
|Provision for loss on accounts receivable                                                                |  |                           | (96    
|Changes in operating assets and liabilities:                                                             |  |                           |        
|Accounts receivable.                                                                                     |  |                           | 10,923 
|Inventories (including demonstration systems)                                                            |  |                           | 1,431  
|Other current assets                                                                                     |  |                           | 413    
|Sales returns                                                                                            |  |                           |       
|Restructuring cost                                                                                       |  |                           |       
|Accounts payable and other liabilities                                                                   |  |                           | (1,247 
|Income tax payable                                                                                       |  |                           | (1,585 
|Deferred revenue                                                                                         |  |                           | (3,937 
|                                                                                                         |  |                           |        
|Net cash    (used in) provided by operating activities                                                   |  |                           | (6,943 
|Investing    Activities                                                                                  |  |                           |        
|Purchases of    property, equipment and leasehold improvements                                           |  |                           | (2,098 
|Proceeds from    sale of property, equipment and leasehold improvements                                  |  |                           | 107    
|Other assets    and liabilities                                                                          |  |                           | (1,688 
|                                                                                                         |  |                           |        
|Net cash    (used in) provided by investing activities                                                   |  |                           | (3,679 
|Financing    Activities                                                                                  |  |                           |        
|Issuance of    stock                                                                                     |  |                           | 11,811 
|Preferred    stock dividend                                                                              |  |                           |       
|Redemption    of preferred stock                                                                         |  |                           |       
|Redemption    of 7 1/8% convertible debt                                                                 |  |                           |       
|Borrowings    under bank credit lines                                                                    |  |                           |       
|Repayments    of borrowings under bank credit lines                                                      |  |                           | (8,050 
|Payments on    capital lease obligations                                                                 |  |                           | (663   
|                                                                                                         |  |                           |        
|Net cash    provided by financing activities                                                             |  |                           | 3,098  
|Effect of exchange    rate changes in cash                                                               |  |                           | 5,414  
|                                                                                                         |  |                           |        
|Net    (decrease) increase in cash and cash equivalents                                                  |  |                           | (2,110 
|Cash and    cash equivalents at beginning of year                                                        |  |                           | 44,667 
|                                                                                                         |  |                           |        
|Cash and    cash equivalents at end of year                                                              |  | $                         | 42,557 
|                                                                                                         |  |                           |        
|Supplemental Cash Flow Information                                                                       |  |                           |        
|Cash paid    during the year for:                                                                        |  |                           |        
|Interest                                                                                                 |  | $                         | 1,157  
|Taxes (primarily foreign)                                                                                |  | $                         | 1,133  
|Non-cash    investing and financing activities:                                                          |  |                           |        
|Equipment acquired under capital lease                                                                   |  | $                         | 182    




See accompanying notes to the consolidated financial statement





F-5


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS





|1. | COMPANY INFORMATION, SIGNIFICANT ACCOUNTING POLICIES AND BALANCE    SHEET ANALYSIS
|-- | ----------------------------------------------------------------------------------




Background





Trikon  Technologies, Inc. and its subsidiaries (collectively the Company) operate in  one segment, designing, manufacturing and servicing of front-end wafer  processing semiconductor-manufacturing equipment. These products are used for  chemical and physical vapor deposition and for etch applications and are sold  to semiconductor manufacturers worldwide.





The  consolidated financial statements of the Company include the accounts of its  subsidiaries all of which are wholly owned. All significant intercompany  accounts and transactions have been eliminated upon consolidation.





Revenue Recognition





The Company  derives its revenues from three sources  equipment sales, spare parts sales  and service contracts, and adopted Staff Accounting Bulletin 101 (SAB 101)  issued by the staff of the Securities and Exchange Commission, in fiscal 2000.





In accordance  with SAB 101, revenues related to equipment sales are recognized upon shipment  and transfer of title when the equipment has been pre-tested in the factory  under conditions similar to which the customer intends to operate the equipment  and meets all of the customers defined specifications. For new customers, or  new products, revenue is recognized only on final acceptance unless the  customer attends and approves the pre-testing procedures and the customer and  the Company are satisfied that the performance of the equipment, once installed  and operated, will continue to meet the customer-defined specifications.  Equipment sold as demonstration or evaluation units are recognized as revenue  on transfer of title and either final acceptance, or satisfactory completion of  testing to demonstrate that the equipment meets all the customer defined  specifications.





Equipment  sales generally include the provision of installation and commissioning  services, which are not essential to the functionality of the equipment but  have contractual payment terms linked to the final acceptance. The Company  defers revenue recognition on the portion of revenue contractually linked to  final acceptance, or the fair value of the installation services, if greater,  until after acceptance of the machine.





Revenue  related to spare parts is recognized on shipment and revenue related to service  contracts is recognized ratably over the duration of the contracts.





Use of Estimates





The  preparation of consolidated financial statements in conformity with generally  accepted accounting principles requires management to make estimates and  assumptions that affect the amounts reported in the financial statements and  accompanying notes. Actual results could differ from those estimates.





Inventories





Inventories  are stated at the lower of cost (first-in, first-out method) or market and  consist of the following:





|                                |  | December
        31,   |       
|------------------------------- |  | ---------------------- | ------
|                                |  |                        |       
|                                |  | 2002                   |       
|                                |  |                        |       
|                                |  | (In
        thousands) |       
|                                |  |                        |       
|Customer
        service spares |  | $                      | 4,327 
|Components                      |  |                        | 7,878 
|Work-in-process                 |  |                        | 7,065 
|Finished
        goods          |  |                        | 1,216 
|                                |  |                        |       
|                                |  | $                      | 20,486
|                                |  |                        |       




F-6


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





Cash Equivalents





Cash  equivalents represent
short-term investments that are highly liquid, are of  limited credit risk and
have original maturities of three months or less when purchased.





Property, plant and equipment





Property,  plant and equipment is stated at cost. Depreciation and amortization is  computed using the straight-line method over the estimated useful lives of the  assets (five years) or the lease term. Owned buildings are depreciated using  the straight-line method over 50 years.





The components  of property, plant and equipment are as follows:





|                                                       |  | December
        31,   |       
|------------------------------------------------------ |  | ---------------------- | ------
|                                                       |  |                        |       
|                                                       |  | 2002                   |       
|                                                       |  |                        |       
|                                                       |  | (In
        thousands) |       
|                                                       |  |                        |       
|Land
        and buildings                             |  | $                      | 1,280 
|Machinery
        and equipment                        |  |                        | 22,579
|Furniture
        and fixtures                         |  |                        | 4,037 
|Leasehold
        improvements                         |  |                        | 11,628
|                                                       |  |                        |       
|                                                       |  |                        | 39,524
|Less
        accumulated depreciation and amortization |  |                        | 19,888
|                                                       |  |                        |       
|                                                       |  | $                      | 19,636
|                                                       |  |                        |       




Cost of  equipment under capital leases included in property and equipment at December  31, 2002 and 2001 was $2,183,000 and $1,956,000 respectively, and accumulated  amortization was $736,000 and $342,000, respectively. Amortization expense  under these leases is included in depreciation expense.





Demonstration Systems





Demonstration  or evaluation systems are completed systems located at certain strategic customer  sites or at the Companys facilities. The Company provides these demonstration  systems at no charge for a specified evaluation period. The customer pays all  operating costs incurred during the evaluation period. At the conclusion of the  agreed upon evaluation period, provided that the equipment performs to required  specifications, management expects that the customer, while not obligated to do  so, will purchase the system. Demonstration systems are stated at the lower of  cost or estimated net realizable value and are depreciated on a straight-line  method over four years, if the product is not sold after one year.  Demonstration systems, net of depreciation, amounted to $2.7 million and $3.0  million at December 31, 2002 and 2001 respectively.





Accounting for Income Taxes





The Company  accounts for income taxes using the liability method in accordance with  Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for  Income Taxes.





Stock-based Compensation





As permitted by SFAS No. 123, Accounting  for Stock-Based Compensation, the Company has elected to continue to apply the  provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting  for Stock Issued to Employees, and related interpretations in accounting for  its employee stock option plan. The Company is generally not required under APB  Opinion No. 25 and related interpretations to recognize compensation expense in  connection with its employee stock option plans, since stock options are  granted at fair market value. The disclosures required by SFAS No. 123 and SFAS  No. 148 are included in note 10 to these consolidated financial statements.





F-7


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





Research and Development Costs





Research and  development costs are expensed as incurred.





Foreign Currency Translation





The functional
  currency of most of the Companys foreign subsidiaries is the local currency.
  The Company translates the assets and liabilities of its foreign subsidiaries
  at the rate of exchange in effect at the balance sheet date and translates the
  statement of operations items at the average exchange rate for the year. Translation
  adjustments are recorded as a component of stockholders equity in the
  line item Accumulated other comprehensive loss in the consolidated
  balance sheet. Transaction gains and losses, other than those that relate to
  transactions deemed to be of a long-term nature, are recognized in earnings.
  During the years ended December 31, 2002, 2001 and 2000, the transaction
  exchange gains (losses) credited to selling, general and administrative costs
  were $(2,100), $1,149,000 and $910,000, respectively.





Other current liabilities





The components  of other current liabilities are as follows:





|                          |  | December
        31,   |      
|------------------------- |  | ---------------------- | -----
|                          |  |                        |      
|                          |  | 2002                   |      
|                          |  |                        |      
|                          |  | (In
        thousands) |      
|                          |  |                        |      
|Customer
        deposits |  | $                      | 2,403
|Payroll
        taxes     |  |                        | 667  
|Income
        taxes      |  |                        | 164  
|Other                     |  |                        | 628  
|                          |  |                        |      
|Total                     |  | $                      | 3,862
|                          |  |                        |      




|2 | RECENT ACCOUNTING PRONOUNCEMENTS
|- | --------------------------------




SFAS No.143,  Accounting for Asset Retirement Obligations addresses the accounting for  obligations associated with the retirement of tangible long-lived assets and  the associated asset retirement costs. This statement is effective for  financial years commencing after June 15, 2002 and the adoption of this  statement is not expected to have a material effect on the Companys financial  position or results of operations.





SFAS No.  144, Accounting for the Impairment or Disposal of Long-Lived Assets  supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets  and for Long-Lived Assets to Be Disposed Of, and provides a model for the  disposal of long-lived assets from continuing and discontinued operations. The  Company adopted this standard on January 1, 2002 and the adoption of this  statement did not have a material effect on the Companys financial position or  results of operations.





In  June 2002, the Financial Accounting Standards Board issued SFAS  No. 146, Accounting for Costs Associated with Exit or Disposal  Activities. The statement changes the measurement and timing of recognition  for exit costs, including restructuring charges, and is effective for any such  activities initiated after December 31, 2002. It has no effect on charges  recorded for exit activities begun prior to this date. The adoption of this  statement is not anticipated to have a material effect on the Companys  financial position or results of operations





SFAS No.  148, Accounting for stock based Compensation  Transition and disclosure  amends SFAS No. 123, Accounting for Stock-Based Compensation, and  provides for additional disclosures relating to the pro forma effects of fair  value based accounting when accounting is based upon the provisions of APB  Opinion No. 25, Accounting for Stock Issued to Employees, The Company has  included the additional disclosures of this standard in note 10 to these  financial statements.





|3 | SEGMENT, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
|- | ---------------------------------------------------




The Company
  operates in one business segment: designing, manufacturing and servicing of
  front-end wafer processing semiconductor-manufacturing equipment. All products
  and services are marketed within the geographic regions in which the Company
  operates. The Companys current products and services qualify for aggregation
  under SFAS 131 Disclosures about Segments of an Enterprise and Related
  Information, as its products are manufactured and distributed in the same
  manner, have similar gross margins and are sold to the same customer base.





F-8


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)










The Companys  revenue by geographic area to unaffiliated customers was as follows:





|                      |  | Year
        Ended December 31, |       
|--------------------- |  | ------------------------------- | ------
|                      |  |                                 |       
|                      |  | 2002                            |       
|                      |  |                                 |       
|                      |  | (In
        thousands)          |       
|                      |  |                                 |       
|North
        America |  | $                               | 10,728
|Europe                |  |                                 | 21,112
|Asia                  |  |                                 | 975   
|                      |  |                                 |       
|Total                 |  | $                               | 32,815
|                      |  |                                 |       




Sales between  geographic regions are accounted for at prices that provide a profit and are in  accordance with the rules and regulations of the respective governing bodies.  The geographic locations of the Companys assets are as follows:





|                         |  | December 31,   |       
|------------------------ |  | -------------- | ------
|                         |  |                |       
|                         |  | 2002           |       
|                         |  |                |       
|                         |  | (In thousands) |       
|Long lived assets:       |  |                |       
|North America            |  | $              | 42    
|Europe                   |  |                | 19,551
|Asia                     |  |                | 43    
|                         |  |                |       
|                         |  | $              | 19,636
|                         |  |                |       
|All identifiable assets: |  |                |       
|North America            |  | $              | 6,656 
|Europe                   |  |                | 90,158
|Asia                     |  |                | 374   
|                         |  |                |       
|                         |  | $              | 97,188
|                         |  |                |       




The Companys  main facility is based in the United Kingdom and most of the Companys products  are shipped directly from the United Kingdom to the end geographic region.  During the year ended December 31, 2002, 2001 and 2000 export sales of the  Company originating from the United States were $2,380,000, $5,860,000 and  $3,947,000 respectively.





Total revenue includes  amounts from certain individual customers that exceed 10% of total revenue.  Revenue from one customer represented 11% of total revenue for the year ended  December 31, 2002. Revenue from two customers represented 17% and 15% each of  total revenue for the year ended December 31, 2001. Revenue from four customers  represented 23%, 16% 12% and 11% each of total revenue for the year ended  December 31, 2000.





|4 | COMPREHENSIVE (LOSS) INCOME
|- | ---------------------------




Comprehensive (loss) income is
comprised of net (loss) income, provisions for unfunded accumulated benefit
 obligations with respect to the Companys defined benefit pension plan and
  currency translation losses as follows:





|                          |  | Year
        Ended December 31, |        
|------------------------- |  | ------------------------------- | -------
|                          |  |                                 |        
|                          |  | 2002                            |        
|                          |  |                                 |        
|                          |  | (in
        thousands)          |        
|                          |  |                                 |        
|Net
        (loss) income |  | $                               | (19,635




F-9


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





|Pension plan    obligations                 |  |   | (3,695  | ) |   | (3,525 | ) |   |       |  
|------------------------------------------- |  | - | ------- | - | - | ------ | - | - | ------ | -
|Foreign    currency translation adjustments |  |   | 5,069   |   |   | (994   | ) |   | (3,078 | )
|                                            |  |   |         |   |   |        |   |   |        |  
|Comprehensive    (loss) income              |  | $ | (18,261 | ) | $ | 6,731  |   | $ | 14,069 |  
|                                            |  |   |         |   |   |        |   |   |        |  




Accumulated  other comprehensive income comprises:





|                                                 |  | Year
        Ended December 31 |      
|------------------------------------------------ |  | ------------------------------ | -----
|                                                 |  |                                |      
|                                                 |  | 2002                           |      
|                                                 |  |                                |      
|                                                 |  | (in
        thousands)         |      
|                                                 |  |                                |      
|Foreign
        currency translation adjustments |  | $                              | 1,180
|Pension plan
        obligations                 |  |                                | 7,220
|                                                 |  |                                |      
|Total                                            |  | $                              | 8,400
|                                                 |  |                                |      




|5 | EARNINGS    PER SHARE
|- | ---------------------




The  following table sets forth the computation of basic and diluted earnings per  share.





|                                                                                  |  | Year
        ended December 31 |         
|--------------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                                  |  |                                |         
|                                                                                  |  | 2002                           |         
|                                                                                  |  |                                |         
|                                                                                  |  | (In
        thousands)         |         
|Numerator:                                                                        |  |                                |         
|Net
        (loss) income before cumulative effect of change in accounting policy |  | $                              | (19,635)
|Cumulative
        effect of change in accounting policy                          |  |                                |        
|                                                                                  |  |                                |         
|Net
        (loss) income                                                         |  |                                | (19,635 
|Dividend
        applicable to Preferred Stock                                    |  |                                |        
|                                                                                  |  |                                |         
|Net
        (loss) income applicable to common shares                             |  | $                              | (19,635 
|                                                                                  |  |                                |         
|Denominator:                                                                      |  |                                |         
|For
        basic earnings per share:                                             |  |                                |         
|Weighted
        average shares  outstanding                                      |  |                                | 13,682  
|Restricted
        shares                                                         |  |                                | (1,149  
|                                                                                  |  |                                |         
|                                                                                  |  |                                | 12,533  
|                                                                                  |  |                                |         
|For
        diluted earnings per share:                                           |  |                                |         
|Adjusted
        weighted average shares outstanding                              |  |                                | 12,533  
|Effect
        of dilutive securities:                                            |  |                                |         
|Employee
        stock options                                                    |  |                                |        
|Restricted
        shares                                                         |  |                                |        
|                                                                                  |  |                                |         
|                                                                                  |  |                                | 12,533  
|                                                                                  |  |                                |         




Basic and  diluted earnings per share are calculated in accordance with SFAS 128,  Earnings Per Share, which specifies the computation, presentation and  disclosure requirements for earnings per share. The weighted-average number of  shares used to calculate basic earnings per share for each period excludes  1,149,281 unvested shares of restricted common stock issued to the Companys  Chairman of the Board in 1998. Subject to certain conditions, the restricted  stock will vest 100% upon the earlier of (i) May 14, 2003, or  (ii) the sale of all or substantially all of the Companys assets





F-10


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





|6. | INCOME TAXES
|-- | ------------




The income tax  (credit) charge consists of the following:





|                       |  | Year Ended    December 31 |       
|---------------------- |  | ------------------------- | ------
|                       |  |                           |       
|                       |  | 2002                      |       
|                       |  |                           |       
|                       |  | (In thousands)            |       
|Current:               |  |                           |       
|Federal                |  | $                         |      
|State                  |  |                           | 109   
|Foreign                |  |                           | (1,672
|                       |  |                           |       
|                       |  | $                         | (1,563
|Deferred    (foreign): |  |                           | (602  
|                       |  |                           |       
|Total                  |  | $                         | (2,165
|                       |  |                           |       




A reconciliation
  of income taxes (credited) charged at the federal rate (35% in all years) to
  actual income tax (credit) expense is as follows:





|                                                              |  | Year
        Ended December 31 |      
|------------------------------------------------------------- |  | ------------------------------ | -----
|                                                              |  |                                |      
|                                                              |  | 2002                           |      
|                                                              |  |                                |      
|Income
        taxes at the federal income tax rate           |  |                                | (35.0
|Foreign taxes
        at lower rates than the federal rate    |  |                                | 4.4  
|                                                              |  |                                |      
|                                                              |  |                                | (30.6
|State taxes
        payable                                   |  |                                | 0.5  
|Effect
        of Stock compensation amortization             |  |                                | 2.4  
|Research
        and development credit                       |  |                                | (0.8 
|Change in
        valuation reserve due to:                   |  |                                |      
|Foreign
        Net operating losses utilized in the period   |  |                                |     
|Foreign
        Net operating losses generated in the period  |  |                                | 24.7 
|Domestic
        Net operating losses generated in the period |  |                                | 1.7  
|Other                                                         |  |                                | (1.0 
|Other                                                         |  |                                | (6.8 
|                                                              |  |                                |      
|                                                              |  |                                | (9.9 
|                                                              |  |                                |      




The (loss)  income before income taxes of the Companys non-US subsidiaries for the years  ended December 31, 2002, 2001 and 2000 was approximately $(19,129,000),  $14,415,000 and $19,822,000 respectively.





As of December  31, 2002, the Company had federal net operating loss carry forwards of  approximately $22.3 million (adjusted for the estimated effects of a change of  ownership under s382 of the internal revenue code of 1986, as revised (the  code)) and California operating loss carry forwards of  $18.4 million. The net operating loss  carryforwards will expire at various dates beginning in years 2008 through  2019, if not utilized. At December 31, 2002 the Company also had United Kingdom  net operating loss carry forwards of approximately $18.4 million, which can be  offset against future profits arising from the same business indefinitely.





Utilization
  of the net operating losses and credits that arose prior to the change of ownership
  under the code is subject to a substantial annual limitation due to limitations
  provided by the code and similar state provisions. The annual limitation may
  result in the expiration of net operating losses before utilization.





Significant  components of the Companys deferred tax liabilities and assets are as follows  at December 31:





F-11


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





|                                                               |  | December
        31    |        
|-------------------------------------------------------------- |  | ---------------------- | -------
|                                                               |  |                        |        
|                                                               |  | 2002                   |        
|                                                               |  |                        |        
|                                                               |  | (in
        thousands) |        
|Deferred
        tax assets:                                   |  |                        |        
|Domestic:                                                      |  |                        |        
|Allowances
        and accruals not deducted for current taxes |  | $                      | 54     
|Net
        operating loss carry forwards                      |  |                        | 9,460  
|Foreign:                                                       |  |                        |        
|Allowances
        and accruals not deducted for current taxes |  |                        | 488    
|Net
        operating loss carry forwards                      |  |                        | 5,519  
|                                                               |  |                        |        
|                                                               |  |                        | 15,521 
|Less
        valuation reserve                                 |  |                        | (14,126
|Deferred
        tax liabilities:-                             |  |                        |        
|Domestic                                                       |  |                        |       
|Foreign:                                                       |  |                        |        
|Depreciation                                                   |  |                        | (883   
|Other                                                          |  |                        | (512   
|                                                               |  |                        |        
|Net
        deferred tax (liability)                           |  | $                      |       
|                                                               |  |                        |        




|7 | LONG-TERM DEBT
|- | --------------




Long-term  debt includes the following:





|                                  |  | December
        31    |       
|--------------------------------- |  | ---------------------- | ------
|                                  |  |                        |       
|                                  |  | 2002                   |       
|                                  |  |                        |       
|                                  |  | (in
        thousands) |       
|                                  |  |                        |       
|Bank
        debt                 |  | $                      | 18,112
|Capital
        lease obligations |  |                        | 1,256 
|                                  |  |                        |       
|Total                             |  |                        | 19,368
|Less
        current portion:     |  |                        | 8,651 
|                                  |  |                        |       
|Long
        term portion         |  | $                      | 10,717
|                                  |  |                        |       




Bank Debt





During the
  year ended December 31, 2001, the Company entered into a three-year term loan
  facility of £15 million  (approximately $24.2 million at year-end
  exchange rates) from a British bank. The balance outstanding was 11,250,000
  British pounds at December 31, 2002 ($18.1 million) compared to 15 million British
  pounds at December 31, 2001 (approximately $24.2 million). The term loan bears
  interest at the three month London Interbank Borrowing Rate (LIBOR) plus 1.25%
  (rate of 5.29% at December 31, 2002) per annum and also carries no prepayment
  penalties. Under the terms of this loan the Company is required to pay five
  equal quarterly installments of approximately 1,250,000 British pounds (approximately
  $2.0 million) per quarter commencing January 2003 and a final repayment of 5
  million British pounds (approximately $8.0 million) in March 2004.





The loan  facility includes financial covenants that require the Company to maintain the  ratio of net borrowings to net worth at less than 0.5:1.0, and, for half year  periods ending after June 30, 2003, to maintain net interest cost at below 10%  of profit before interest and taxes. The Company is allowed to incur net  interest of 250,000 British pounds (approximately $405,000) for the six months  ending June 30, 2003.





In addition,
  during fiscal 2000, the Company entered a two-year term loan facility of 5 million
  British pounds (approximately $7.3 million at the year-end exchange rates),
  which was repaid in full by December 31, 2002.





F-12


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





The Company  also has an overdraft (credit) facility with the same bank of up to 1.5 million  British pounds for use against standby letters of credit and guarantees  (approximately $2.4 million at the year end exchange rate). No amount was  outstanding under this facility as at December 31, 2002 and 2001.





|8. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------




Leases:





The Company  leases certain equipment under capital leases. The Company also leases its  offices, manufacturing facilities and certain equipment under non-cancelable  operating lease agreements. Certain leases are subject to escalation clauses  based on applicable inflation indexes.





Future minimum  lease payments under capital leases and non-cancelable operating leases with  initial terms of one year or more consisted of the following at December 31,  2002:





|                                                                                             |  | Capital
        Leases |       | Operating
        Leases |  
|-------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ------------------------ | -
|                                                                                             |  |                        |       |                          |  
|                                                                                             |  | (In
        thousands) |      
|                                                                                             |  |                        |       |                          |  
|2003                                                                                         |  | $                      | 675   |                          | $
|2004                                                                                         |  |                        | 565   |                          |  
|2005                                                                                         |  |                        | 188   |                          |  
|2006                                                                                         |  |                        |      |                          |  
|2007                                                                                         |  |                        |      |                          |  
|                                                                                             |  |                        |       |                          |  
|                                                                                             |  |                        | 1,428 |                          | $
|                                                                                             |  |                        |       |                          |  
|Less
        amounts representing imputed interest                                           |  |                        | 172   |                          |  
|                                                                                             |  |                        |       |                          |  
|Present
        value of net minimum lease payments, including amounts classified as current |  | $                      | 1,256 |                          |  
|                                                                                             |  |                        |       |                          |  




Rental expense  for operating leases was $1.8 million, $1.7 million and $1.6 million for the  years ended December 31, 2002, 2001, and 2000, respectively.





Contingencies:





In the  ordinary course of business the Company is involved with various types of  claims and legal proceedings, which may result in litigation, or other legal  proceedings. The Company does not anticipate that any of these proceedings will  have a material adverse effect on the Companys financial position, cash flow  or results of operations.





|9. | FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
|-- | ------------------------------------------------------




The Companys  financial instruments consist primarily of cash, cash equivalents, accounts  receivable, accounts payable, capital lease obligations, and the convertible  subordinated notes. The carrying amounts at December 31, 2002 of these  financial instruments approximates their fair value,





The Company  from time to time enters into foreign exchange contracts of a short-term nature  (typically 1 month or less) that are generally matched to the estimated  collection of accounts receivable. These contracts are generally for the sale  of U.S. Dollars into British pounds. No contracts were outstanding at December  31, 2002 or 2001. The Company has not entered into any other derivative  financial instrument and does not hold or use financial instruments for  speculative purposes





F-13


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





The Companys exposure to concentration of credit risk arises primarily  from its accounts receivables. Accounts receivable consist primarily of amounts  due from original equipment manufacturers, end use customers, and distributors  within the Companys industry. At December 31, 2002 three customers represented  37%, 12% and 12% of the total accounts receivable. At December 31, 2001 three  customers represented   21%, 19%, and  12% of the total accounts receivable. The Company performs credit evaluations  and analysis of amounts due from its customers; however, the Company does not  require collateral. Credit losses have been within managements expectations  and an estimate of un-collectible accounts has been provided for in the  financial statements.





|10. | STOCKHOLDERS EQUITY
|--- | -------------------




Preferred Stock





The Board of  Directors has the authority to issue up to 20,000,000 shares of Preferred Stock  in one or more series with rights, preferences, privileges and restrictions to  be determined at the Board of Directors discretion.





Restricted Stock





In connection  with the consummation of a capital reorganization in fiscal 1998, the Company  issued 1,149,281 shares of restricted Common Stock to the Companys Chairman of  the Board. Subject to certain conditions, the restricted stock will vest 100%  upon the earlier of (i) May 14, 2003, or (ii) the sale of all or  substantially all of the assets of the Company. The restricted stock represents  approximately 8% of the outstanding Common Stock (after giving effect to the  elimination of the restrictions on the stock). The restricted stock was valued  at $7.6 million based upon average traded prices immediately after the  grant. This amount has been accounted for as an addition to Common Stock and as  deferred compensation within the Statement of Shareholders Equity. The deferred  compensation is being amortized on a straight-line basis over a five-year  period resulting in a charge against operations of
$1.5 million during  each of the years ended December 31, 2002, 2001 and 2000.





Warrants





In connection  with the sale of 925,930 common shares to an institutional investor in May  2001, the Company issued warrants for the purchase of 92,593 shares of common  stock. The warrants are valid for four years and expire May 23, 2005. The  warrants have an exercise price of $13.50. In the event that the volume  weighted average market price exceeds $21.60 for any 30-day consecutive period,  with a minimum daily trading volume of 200,000 shares, the Company can force  the exercise of the warrant.





Stock Options





In October  1996, the Company changed its Non-Qualified Employee Option Plan to an  Incentive Stock Option Plan (the Option Plan). At the Annual Meetings of  Shareholders held on June 14, 1999, May 31, 2000 and May 15, 2001, the number  of shares of Common Stock reserved for issuance under the Option Plan was  increased from 887,000 to 1,050,000 then to 1,500,000 and then to 2,250,000  respectively, at each of these dates. The Company also has a Directors Plan  that initially provided for the issue of up to 50,000 shares of Common Stock to  Non-Employee Directors. At the Annual Meetings of Shareholders held on May 16,  2002, the number of shares of Common Stock reserved for issuance under the  Option Plan was increased to 150,000. The Option Plans provide options to  purchase shares of the Companys Common Stock for officers, directors, and  employees, at an exercise price equal to the fair market value on
the date of  grant as determined by the Board of Directors. The shares issued under the  Option Plan and Directors plan shall become vested over periods up to five  years and have a maximum term of ten years. A summary of the changes in the  status of options is as follows:





|                                      |  | Options
        Outstanding |   | Price
        Range Per
        Share |   | Weighted
        Average
        Price
        Per Share
|------------------------------------- |  | --------------------------- | - | ------------------------------------- | - | --------------------------------------------------------
|                                      |  |                             |   |                                       |   |                                                         
|Outstanding
        at January 1,2000 |  | 756,254                     |   | 0.31                                  | - | 14.38                                                   
|Granted                               |  | 239,700                     |   | 10.7                                  | - | 25.25                                                   
|Cancelled.                            |  | (26,489                     | ) | 1.25                                  | - | 14.38                                                   




F-14


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





|Exercised                                |  | (48,177   | ) | 0.31 | - | 14.38 |  | 0.92 
|---------------------------------------- |  | --------- | - | ---- | - | ----- |  | -----
|                                         |  |           |   |      |   |       |  |      
|Outstanding
        at December 31, 2000 |  | 921,288   |   | 0.31 | - | 25.25 |  | 6.71 
|Granted                                  |  | 197,970   |   | 9.44 | - | 12.1  |  | 10.82
|Cancelled.                               |  | (49,666   | ) | 0.47 | - | 14.38 |  | 9.91 
|Exercised                                |  | (70,948   | ) | 0.46 | - | 6.25  |  | 0.80 
|                                         |  |           |   |      |   |       |  |      
|Outstanding
        at December 31, 2001 |  | 998,644   |   | 0.31 | - | 25.25 |  | 7.78 
|Granted                                  |  | 412,808   |   | 5.09 | - | 14.34 |  | 13.18
|Cancelled.                               |  | (71,323   | ) | 1.25 | - | 14.81 |  | 12.39
|Exercised                                |  | (77,586   | ) | 0.46 | - | 1.41  |  | 0.97 
|                                         |  |           |   |      |   |       |  |      
|Outstanding
        at December 31, 2002 |  | 1,262,543 |   | 0.31 | - | 25.25 |  | 9.70 
|                                         |  |           |   |      |   |       |  |      




At December  31, 2002, 2001 and 2000, 656,429, 473,199 and 316,840 shares were exercisable  at weighted-average prices of $7.12, $6.22 and $4.89 respectively. There were  827,882 option shares available for grant under the Option Plan and 86,150  under the Directors Plan at December 31, 2002.





Information  regarding stock options outstanding as of December 31, 2002 is as follows:





|Price Range                 |  | Options
      Outstanding               |       | Options
      Exercisable                           | 
|--------------------------- |  | --------------------------------------- | ----- | --------------------------------------------------- | 
|                            |  |                                         |       |                                                     | 
|Shares                      |  | Weighted
        Average Exercise Price |       | Weighted
        Average Remaining Contractual Life | 
|                            |  |                                         |       |                                                     | 
|From
        $0.31 to $9.99 |  | $                                       | 1.92  |                                                     | 
|$10.00
        to $25.25    |  | $                                       | 13.72 |                                                     | 




Stock Based Compensation Expense





The Company  has estimated the fair value of the options at the date of grant using a  Black-Scholes option pricing model with the following weighted-average  assumptions for 2002, 2001, and 2000, respectively: Risk-free interest rates of  2.46%, 4.04%, and 7.1%; a zero dividend yield in all three years; volatility  factors of the expected market price of the Companys Common Stock of 91.5%,  63.1% and 112.5% and an expected life of the options of 3.8 years, 3.9 years  and 4.2 years. These assumptions resulted in weighted-average fair values of  $6.35, $4.02, and $5.23 per share for stock options granted in 2002, 2001, and  2000, respectively.





The Black-Scholes  option-pricing model was developed for use in estimating the value of traded  options that have no vesting restrictions and are fully transferable. The  Companys employee stock options have characteristics significantly different  from those of traded options; therefore, the Black-Scholes option-pricing model  may not provide a reliable measure of the fair value of the Companys options.  If compensation expense had been determined based on the grant date fair value  as computed under the Black-Scholes option pricing model for awards in fiscal  2000, 2001 and 2002 in accordance with the provisions of SFAS No. 123 and SFAS  No. 148, the Companys net result and earnings per share would have been  reduced to the pro forma amounts indicated below:








|                                                                              |  | Year
      Ended December 31                 |        
|----------------------------------------------------------------------------- |  | -------------------------------------------- | -------
|                                                                              |  |                                              |        
|                                                                              |  | 2002                                         |        
|                                                                              |  |                                              |        
|                                                                              |  | (In
        thousands except per share data) |        
|                                                                              |  |                                              |        
|Net
        (loss) income as reported                                         |  | $                                            | (19,635
|Compensation
        expense included in determination of reported net income |  |                                              |       
|Pro
        forma compensation expense calculated on the fair value method    |  |                                              | 1,354  
|                                                                              |  |                                              |        
|Pro forma
        net (loss) income                                           |  | $                                            | (20,989
|                                                                              |  |                                              |        
|Pro
        forma (loss) earnings per common share:                           |  |                                              |        
|Basic:                                                                        |  |                                              |        




F-15


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





|(Loss) income applicable to common shares before    |  |   |       |   |   |      |  |   |       |  
|--------------------------------------------------- |  | - | ----- | - | - | ---- |  | - | ----- | -
|Cumulative effect of change in accounting principle |  | $ | (1.67 | ) | $ | 0.92 |  | $ | 1.80  |  
|Cumulative change in accounting principle           |  |   |      |   |   |     |  |   | (0.19 | )
|                                                    |  |   |       |   |   |      |  |   |       |  
|Net (loss) income                                   |  | $ | (1.67 | ) | $ | 0.92 |  | $ | 1.61  |  
|                                                    |  |   |       |   |   |      |  |   |       |  
|Diluted:                                            |  |   |       |   |   |      |  |   |       |  
|(Loss) income applicable to common shares before    |  |   |       |   |   |      |  |   |       |  
|Cumulative effect of change in accounting principle |  | $ | (1.67 | ) | $ | 0.82 |  | $ | 1.56  |  
|Cumulative change in accounting principle           |  |   |      |   |   |     |  |   | (0.16 | )
|                                                    |  |   |       |   |   |      |  |   |       |  
|Net (loss) income                                   |  | $ | (1.67 | ) | $ | 0.82 |  | $ | 1.40  |  
|                                                    |  |   |       |   |   |      |  |   |       |  




|11. | PENSIONS AND OTHER POSTRETIREMENT BENEFITS
|--- | ------------------------------------------




General





The  Company operates multiple pension arrangements for its employees in the various  geographic locations in which is operates. With the exception of the United  Kingdom all these plans are defined contribution schemes operated in accordance  with local rules.





United Kingdom Defined Benefit Pension Plan





The Company  operated a pension plan known as The Electrotech Retirement Benefits Scheme  (the Plan), which undertook to provide retirement benefits to participating  employees based upon their final pensionable salary. The assets of the Plan are  administered by the Trustees and do not belong to the Company.





In March 2001,  the Company decided to curtail the Plan effective April 6, 2001. As a result,  participants did not earn additional defined benefits for service after April  6, 2001. In July 2002 the Company entered into a definitive agreement with the  trustees of the Plan to settle its obligations with respect to the Plan. As a  result of this agreement, the Company irrevocably paid to the plan $1.4 million  in August 2002 and an additional $0.3 million in September 2002. Subsequent to  the year end the Company paid an additional $1.1 million in March 2003. The  Company is not entitled to any refund of these, or other amounts which are held  in trust for the members of the plan. The Company continues to be liable for  any shortfall in the plan assets that arise, for any reason, prior to actual  distribution to the members. As a result the Company has concluded that while  the terms of the definitive agreement, and the actual cash
transfer to the  trustees, constitutes an irrevocable action that relieves the Company of the  primary pension obligation, the Company has not eliminated the significant  risks related to the pension benefit obligation during the year. As a result  the Company, in accordance with SFAS No. 88, Employers Accounting for  Settlements and Curtailments of Defined Benefit Pension Plan and for  Termination Benefits, has not recorded a settlement charge to the income  statement in the year, except for approximately 12% of the fund for which  annuities were purchased and hence a partial settlement,
which resulted in a settlement charge to earnings of $243,000.





As part of the  agreement to wind up the plan in October 2002 the Company placed in an escrow  account $390,000 for the payment of the costs of windup and has purchased  indemnity insurance for the benefit of the trustees of the pension plan. These  additional costs, totaling $497,000, have been included within selling, general  and administrative expenses.





Information  required in respect of the net periodic benefit cost and related obligation  determined in accordance with SFAS No. 87, SFAS No. 88 and SFAS No. 132 is  given below. Assumptions used to determine the net periodic benefit cost and  related benefit obligations are as follows.





|                                                |  | Years
      ended December 31 |     
|----------------------------------------------- |  | ----------------------------- | ----
|                                                |  |                               |     
|                                                |  | 2002                          |     
|                                                |  |                               |     
|Discount
        rate                           |  |                               | 5.60
|Long
        term rate of return on plan assets |  |                               | 7.50
|Increase
        in compensation levels         |  |                               | 0.00




The actuarial  calculations in respect of the Plan assume a rate of increase of pensions in  payment accrued after April 6, 2000 of 2.50%. Fixed pension increase rates  apply for pension in respect of service before that date.





F-16


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TRIKON  TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





The components  of net benefit expense are detailed in the table below.





|                                            |  | Year
      Ended December 31, |     
|------------------------------------------- |  | ----------------------------- | ----
|                                            |  |                               |     
|                                            |  | 2002                          |     
|                                            |  |                               |     
|                                            |  | (in
        Thousands)        |     
|                                            |  |                               |     
|Service
        cost                        |  | $                             |    
|Interest
        cost on benefit obligation |  |                               | 849 
|Expected
        return on plan assets      |  |                               | (849
|Settlement
        loss                     |  |                               | 243 
|Net
        amortization and deferral:      |  |                               |     
|-  recognized
        losses                |  |                               | 78  
|                                            |  |                               |     
|Net
        benefit expense                 |  | $                             | 321 
|                                            |  |                               |     




The funded  status of the Plan is summarized in the table below.





| |  | December    31, | 
| |  | --------------- | 

|                                                                  |  |                        |        |      |  
|----------------------------------------------------------------- |  | ---------------------- | ------ | ---- | -
|                                                                  |  | 2002                   |        | 2001 |  
|                                                                  |  |                        |        |      |  
|                                                                  |  | (in
        thousands) |       
|                                                                  |  |                        |        |      |  
|Actuarial
        present value of accumulated benefit obligation |  | $                      | 15,620 |      | $
|                                                                  |  |                        |        |      |  
|Projected
        benefit obligation                              |  |                        | 15,620 |      |  
|Fair
        value of plan assets                                 |  |                        | 10,308 |      |  
|                                                                  |  |                        |        |      |  
|Benefit
        obligation in excess of plan assets               |  |                        | 5,312  |      |  
|Unrecognized
        prior service cost                           |  |                        |       |      |  
|Unrecognized
        net loss                                     |  |                        | (7,220 | )    |  
|                                                                  |  |                        |        |      |  
|Net
        amount recognized at end of year                      |  | $                      | (1,908 | )    | $
|                                                                  |  |                        |        |      |  




The Company
  amortizes the unrecognized net loss or gain as a component of pension costs,
  to the extent that the unrecognized net gain or loss exceeds 10% of the greater
  of the projected benefit obligation or the market related value of plan assets.
  The Company historically amortized this adjusted gain or loss over the remaining
  service life of the participants of the Plan. As the plan was curtailed in April
  2001 this basis of amortization is no longer appropriate and as a result the
  Company amortizes the deficit over the remaining average life expectancy of
  the inactive participants.





The accumulated benefit  obligation exceeded the fair value of the Plan assets at December 31, 2002 and  2001 and accordingly the Company recognized an additional minimum liability,  and, as there was no unrecognized prior service cost, an equal amount was  charged to other comprehensive income.





F-17


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





Change in benefit obligation

|                                            |  | Year
        Ended December 31 |       
|------------------------------------------- |  | ------------------------------ | ------
|                                            |  |                                |       
|                                            |  | 2002                           |       
|                                            |  |                                |       
|                                            |  | (in
      thousands)           |       
|                                            |  |                                |       
|Benefit
        obligation at start of year |  | $                              | 13,753
|Translation
        difference              |  |                                | 1,571 
|Service
        cost                        |  |                                |      
|Interest
        cost                       |  |                                | 849   
|Contributions
        by plan participants  |  |                                |      
|Actuarial
        losses (gains)            |  |                                | 718   
|Impact
        of curtailment               |  |                                |      
|Impact of
        settlement                |  |                                | (1,211
|Benefits
        paid                       |  |                                | (60   
|                                            |  |                                |       
|Benefit obligation
        at end of year   |  | $                              | 15,620
|                                            |  |                                |       




Change in plan assets

|                                                   |  | Year
        Ended December 31 |       
|-------------------------------------------------- |  | ------------------------------ | ------
|                                                   |  |                                |       
|                                                   |  | 2002                           |       
|                                                   |  |                                |       
|                                                   |  | (in
        thousands)         |       
|                                                   |  |                                |       
|Fair
        value of plan assets at start of year |  | $                              | 10,331
|Translation
        difference                     |  |                                | 1,119 
|Actual
        (loss) return on plan assets        |  |                                | (1,553
|Contributions
        by plan participants         |  |                                |      
|Contributions
        by employer                  |  |                                | 1,925 
|Settlement                                         |  |                                | (1,454
|Benefits
        (paid)                            |  |                                | (60   
|                                                   |  |                                |       
|Fair
        value of plan assets at end of year   |  | $                              | 10,308
|                                                   |  |                                |       




Defined Contribution Pension Arrangements





In November  1993, the Company established a 401(k) plan covering substantially all of its  U.S. employees. The 401(k) plan allows eligible employees to contribute up to  15% of their compensation. Company contributions are voluntary and at the  discretion of the Board of Directors. There were no contributions made by the  Company for the years ended December 31, 2002, 2001, and 2000.





In the United  Kingdom the Company also operates a defined contribution pension Plan, which  allows for employees to contribute part of their compensation to the plan. The  Company also makes contributions to this scheme on behalf of the employees and  total Company contributions for the years ended December 31, 2002, 2001 and  2000 amounted to $689,000 $588,000 and $333,000 respectively.





There are no  other post retirement benefits provided to employees.





F-18


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TRIKON TECHNOLOGIES, INC.





NOTES TO FINANCIAL  STATEMENTS (CONTINUED)





|12. | UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA
|--- | -----------------------------------------------




| |  |  |  | Quarter |  |  |  | Fiscal | 
| |  |  |  | ------- |  |  |  | ------ | 

|                                              |  | First |        | Second |   | Third  |   | Fourth |        | Year |  
|--------------------------------------------- |  | ----- | ------ | ------ | - | ------ | - | ------ | ------ | ---- | -
|                                              |  |       |        |        |   |        |   |        |        |      |  
|2002                                          |  |       |        |        |   |        |   |        |        |      |  
|Net sales                                     |  | $     | 8,000  |        | $ | 8,512  |   | $      | 4,506  |      | $
|Gross
        margin                          |  | $     | 2,229  |        | $ | 3,045  |   | $      | 99     |      | $
|Net loss                                      |  | $     | (3,783 | )      | $ | (4,676 | ) | $      | (7,073 | )    | $
|Net (loss) applicable to common shares        |  | $     | (3,783 | )      | $ | (4,676 | ) | $      | (7,073 | )    | $
|(Loss) per diluted share                      |  | $     | (0.32  | )      | $ | (0.37  | ) | $      | (0.55  | )    | $
|2001                                          |  |       |        |        |   |        |   |        |        |      |  
|Net
        sales                             |  | $     | 37,648 |        | $ | 27,653 |   | $      | 19,738 |      | $
|Gross
        margin                          |  | $     | 18,208 |        | $ | 14053  |   | $      | 9,432  |      | $
|Net Income (loss)                             |  | $     | 6,763  |        | $ | 3,842  |   | $      | 894    |      | $
|Net income (loss) applicable to common shares |  | $     | 6,682  |        | $ | 3,782  |   | $      | 894    |      | $
|Income (loss) per diluted share               |  | $     | 0.56   |        | $ | 0.30   |   | $      | 0.07   |      | $




F-19


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TRIKON TECHNOLOGIES, INC.








SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS


Years ended December 31, 2002, 2001 and 2000





|                                |  |                                      |         | Additions                                         |   | Deductions                   |   |                                                      |  
|------------------------------- |  | ------------------------------------ | ------- | ------------------------------------------------- | - | ---------------------------- | - | ---------------------------------------------------- | -
|                                |  |                                      |         |                                                   |   |                              |   |                                                      |  
|Description                     |  | Balance at    Beginning of    Period |         | Charged    (Credited) to    Costs and    Expenses |   | Charged to    Other Accounts |   | Amount    Charged to    Reserve Net of Reinstatement |  
|                                |  |                                      |         |                                                   |   |                              |   |                                                      |  
|Year ended December 31, 2002    |  |                                      |         |                                                   |   |                              |   |                                                      |  
|Allowance    for doubtful items |  | $                                    | 53,000  |                                                   | $ | 96,000                       |   | $                                                    | 
|Year ended December 31, 2001    |  |                                      |         |                                                   |   |                              |   |                                                      |  
|Allowance    for doubtful items |  | $                                    | 104,000 |                                                   | $ | (20,000                      | ) | $                                                    | 
|Year ended December 31, 2000    |  |                                      |         |                                                   |   |                              |   |                                                      |  
|Allowance    for doubtful items |  | $                                    | 46,000  |                                                   | $ | 58,000                       |   | $                                                    | 






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